Sunday, September 23, 2012

The Difference Between a Revocable Living Trust and a Non-Revocable Living Trust

A living trust is a trust that exists and is operational during your lifetime. Such a trust may be set up for many different purposes and may be revocable or non-revocable.
Just for clarification, a trust that doesn't become active until your death is called a testamentary trust. 
By far, the most common living trust is a revocable living trust. "Revocable" means it may be terminated at will by any of the persons who created it. The primary reason these trusts are created is to avoid the nightmares of probate court that occur after the death of the person(s) who created or set up the trust.
There are many other benefits of such trusts, such as avoidance of estate taxes for the heirs, creating special needs trusts for heirs with difficulties, disinheriting heirs, protecting family businesses, and many others, but avoiding probate is almost always the principal reason for a revocable living trust.
Were such a trust not revocable, it would not be practical for the above purposes for virtually all persons.
Non-revocable, or irrevocable trusts are generally used for transfer of assets during one's lifetime, often for tax purposes. For example, an irrevocable trust could be established to provide income to certain heirs during their lifetime, with the assets going to charity after the heir's deaths. This is often used to avoid estate taxes. The creator, however, cannot revoke and usually may not change the terms of the trust or take back the assets. They are no longer owned by the creator of the trust.
The principal difference between the two types of living trusts is that with a revocable trust, the creator of the trust continues to own and control the assets placed into the trust; and with a irrevocable trust, the creator of the trust gives up ownership and control of the assets. There may be exceptions to this general explanation, but these are the principal distinctions.

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