Q: What is the difference between a Revocable Trust and an Irrevocable Trust?
A Revocable Trust can be revoked by the person who created it (the “settlor”) during the settlor’s lifetime. As such, it is treated by tax authorities as a pass through structure for income tax purposes, as well as for the purposes of preserving eligibility for property tax privileges available only to homeowners. Its primary purpose is to avoid probate by passing property, along with a “Pour-over Will”, but it also can be a vehicle for caring for an elderly or disabled person with someone else having the authority to pay that person’s bills. A Revocable Trust is a popular trust form that is usually part of an Estate Plan.
An Irrevocable Trust is a trust set up for most any other purpose; to care for a child or successive children; to care for a disabled person who is the present or potential recipient of government benefits; as a gift to charity; to remove assets from your estate but still control their use; as a vehicle to own life insurance without its becoming part of your estate; and for a variety of other personal and business requirements. An irrevocable trust cannot be amended or revoked by anyone, including the settlor, independent of court action.
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