The Difference Between Revocable and Irrevocable Inter Vivos Trusts

An inter vivos trust is a legal document created while the grantor is still living. The assets are titled in the name of the living trust by the grantor and are used or spent down by the grantor while they are alive. Once the grantor dies, the trustee distributes the assets to the beneficiaries. A living trust is created as either revocable (changeable or able to be withdrawn) or irrevocable. Each type can be used in certain situations, which we detail below.

Key Takeaways

• A revocable living trust is a trust document that can be changed over time. 
• Revocable living trusts are used to avoid probate and to protect the privacy of the trust owner and beneficiaries of the trust.
• An irrevocable living trust is a trust document that cannot be changed after it has been signed.
• Irrevocable trusts provide state and federal estate tax protection to the beneficiaries who inherit the assets held in the trust. 
• Assets titled under an irrevocable living trust are sheltered from creditors in the event of a lawsuit. 

Revocable Living Trust

A revocable living trust is changeable. Beneficiaries, assets, distribution of those assets, and assigned trustees can be changed at the request of the grantor at any time after the trust is established.

Similarly, if the grantor decides the trust is no longer appropriate, they can revoke it altogether. A change to a revocable living trust is completed through a trust amendment document initiated by the grantor.

Important

Revocable trusts become irrevocable when the grantor dies, or a specific provision in the trust happens, like the death of a spouse.

Revocable Living Trust Uses

Revocable living trusts are most often used to avoid probate and to protect the privacy of both the grantor and the beneficiaries of the trust. Revocable trusts may also be used to plan for the trust owner becoming disabled.

While revocable inter vivos trusts provide a great deal of flexibility to the grantor, this type of trust is not appropriate for all estate-planning needs. If a trust is titled revocable, all assets used to fund the trust are considered the grantor’s personal assets. This means that revocable living trust assets are not protected from creditors in the event the grantor is sued, nor are they sheltered from state or federal estate taxes when the grantor dies.

Warning

Revocable living trust assets are not protected from creditors if the grantor is sued, nor are they sheltered from estate taxes when the grantor dies.

Irrevocable Living Trust

An irrevocable living trust cannot be changed after it has been signed. Trustees, beneficiaries and provisions within the trust must remain the same from the time the trust is established until it is no longer applicable or no longer funded.

A revocable living trust converts to an irrevocable trust once the grantor dies or a specific provision of the revocable living trust is met. Specific provisions could include the death of a spouse, a certain date in the future, or a life change for a beneficiary.

Irrevocable Living Trust Uses

Irrevocable trusts provide state and federal estate tax protection for the beneficiaries who inherit the assets held in the trust. Additionally, assets titled under an irrevocable living trust are sheltered from creditors in the event of a lawsuit.

In more complex cases, irrevocable living trusts can be used in charitable giving, either through a charitable remainder trust or a charitable lead trust.

An irrevocable living trust is only appropriate for individuals who are willing to give up control of their assets while alive or those who need enhanced asset protection.

What Is a Trust?

A trust is a legal arrangement that protects assets. A grantor bequeaths assets to a beneficiary. The assets are owned by a trustee, who has a fiduciary responsibility to administer the assets in the interest of the beneficiary.

What Is Inter Vivos?

“Inter vivos” means “while alive” or “between the living.” It’s often associated with a type of trust.

What Is Probate?

Probate is a legal process where a court processes and distributes the assets of a deceased person after they die. It is ultimately a public process. Some trusts bypass probate.

The Bottom Line

Within estate planning, individuals have myriad options for maintaining control over assets beyond the grave. A tool often used in estate plans to control the flow of assets is an inter vivos trust, more commonly referred to as a living trust. It may be revocable or irrevocable. Each type of trust has its own uses. If you’re weighing your options, consider reaching out to an estate planning attorney.