A trust operates as a legal relationship where a right is transferred from one to another who keeps it and uses it solely for the benefit of a third party. In this fiduciary relationship, a trustor grants a trustee the right to hold titles of assets or properties for the benefit of a beneficiary. According to the Washington State Bar Association, establishing a revocable living trust involves trustors naming trustees and governing how assets are managed until death when asset ownership transfers.
More on revocable trusts
A revocable trust has terms that can be altered during the trustor’s lifetime. This trust provides the trustor, or grantor, with more flexibility and control. The revocable living trust allows the trustor to manage and access the assets in the trust throughout their life. Upon death, the trustee is tasked with administering how assets are distributed in accordance with the guidelines of the trust. After the grantor’s death, revocable living trusts can also transition into irrevocable trusts.
Understanding irrevocable living trusts
The irrevocable living trust has terms that can’t be changed once the document has been created. For estate planning purposes, irrevocable trusts offer tax benefits that are unavailable with revocable trusts. Once assets are placed into an irrevocable trust, they cannot be modified or removed. Alterations to irrevocable trusts typically require the approval of the beneficiaries or an order from the court. Once the assets are in an irrevocable trust, they are protected from creditors and legal judgments.
With a revocable trust, the grantor can also be the trustee. With an irrevocable trust, this is not possible. Revocable trusts may provide families with more privacy than irrevocable trusts. While the revocable trusts offer more flexibility as circumstances change with time, numerous alterations may be costly. Because they cannot be changed once formed, irrevocable trusts are often viewed as the riskier option.