The difference between irrevocable and revocable trusts

A trust is a legal entity that you create while you are still living. The whole purpose of a trust is to transfer your assets as seamlessly as possible to your beneficiaries when you pass away. Trusts are generally preferable to wills alone because they avoid probate in most cases.

There are two basic types of trusts that you can create: revocable and irrevocable.

Irrevocable trusts

According to FindLaw, an irrevocable trust is a type of trust that cannot be changed or altered after its creation. Any asset that is placed inside that trust cannot be taken out again, even by the person who creates the trust.

There are many tax benefits to different types of irrevocable trusts, which is one reason people create them. Technically, property in an irrevocable trust is no longer your property, so creditors cannot come after it.

Revocable trusts

Conversely, revocable trusts may be changed, modified or altered at any point after creation. These are also often called living trusts when the trust maker is also the trustee. These are great tools when it comes to avoiding probate.

Some people prefer revocable trusts because they feel that they have more control over their assets. Revocable trusts do not remove ownership, however, and assets that are inside will remain available to creditors. You may set it up so that a revocable trust turns into an irrevocable trust once you pass.

If you are considering setting up a trust to help plan your estate, it may be a good idea to talk to a professional who has experience in the area.