Des Plaines and Hoffman Estates Law Firm Frequently Asked Questions Video
What is the difference between a revocable trust and an irrevocable trust?
What is the difference between a revocable trust and an irrevocable trust. Just looking at what they’re titled. One trust is revocable, meaning that you can change it at any time. And another trust is irrevocable, meaning that you can’t change it.
Typically, most clients will deal with the revocable trust. The reason for that is because you can change it. Plans change over time. Family changes over time. Clients like that flexibility of having an ability to change your plans.
An irrevocable trust is rarely used because clients don’t like the fact that they can’t change it. Again, I had a client that wanted to disinherit their daughter and then two years later, they decided that that was a bad decision. With an irrevocable trust, we lose that opportunity to change plans.
Also, often times people don’t realize an irrevocable trust is often a separate tax entity. As a result, they’re some very negative income tax results, meaning that you’re usually going to have to pay a very high rate of income tax with an irrevocable trust for that assets you are going to place into that.
Tying them back into my prior point, these trusts are forms. You have to make sure that they’re funded. If you don’t place assets inside these trusts, they’re not effective. That’s one of the biggest problems we see over and over again, is that clients come to us with these trusts. They may say revocable trust or irrevocable trust, but we often find that they’re not funded, meaning that there are no assets inside the trust.