Irrevocable vs. Revocable Trusts

When establishing a trust, it is critical to understand the distinction between renewable and permanent trusts.

Trusts can also be changeable (the owner can alter or rescind it at any moment) or permanent. (cannot be changed after it has been created). When the donor dies, most discretionary trusts become permanent.

One important distinction between discretionary and irreversible trusts is that assets transferred into a revocable trust are usually included in your estate for estate tax purposes, whereas assets transferred into an irrevocable trust are usually omitted from your estate for estate tax purposes. Thus, by transferring control of assets to a permanent trust (or at least a portion of control), you may obtain an inheritance tax benefit. It is a good idea to consult with an estate tax expert to figure out how to prepare for any inheritance taxes.

A Living Trust is another name for a discretionary trust. The benefits of a renewable or Living Trust include the ability to designate someone to handle your affairs if you become incapacitated (your replacement administrator), the ability to avoid the extra expense of succession procedures, and the ability to keep your affairs more private.