720-730-7274To accurately explain revocable vs irrevocable trusts for Colorado residents I call upon George Orwell’s novel “Animal Farm” which has one of my all time favorite quotes:
“All animals are created equal, but some are more equal than others.”
I won’t go into the allegorical meaning of this quote, nor make you try to figure out what George Orwell was talking about in his story, taking into account all of the symbolism and other aspects of the allegorical novel, but since this blog post is about different types of trusts, the quote seems fitting. And so we start:
Not all trusts are created equal.
There are many different types of trusts. Each type of trust, and each structure of trust can be used for different purposes. For simplicity, this blog will stick to two major categories of trusts, revocable and irrevocable, comparing them side by side. Some aspects the two types have in common, while other aspects of each trust type are different, as shown here:
Revocable vs. Irrevocable Trusts Compared Side by Side
Revocable |
Irrevocable |
| You can change, amend, or revoke this type of trust at any time while you are alive and mentally capable of doing so. | You cannot amend or revoke this type of trust while you are alive, and you can only change the terms of the trust as the trust agreement itself allows. |
| 1. A Revocable Trust is a Will Substitute
A revocable trust is an alternative way to distribute property other than a will |
1. An Irrevocable Trust is a Will Substitute
A irrevocable trust is an alternative way to distribute property other than a will |
| 2. When used properly, can avoid probate
Assets that are owned by a revocable trust can avoid the probate process. A trust will survive your death, so you can name a successor Trustee in the revocable trust who can distribute trust property free of interference from the court after you die. A trust can only distribute assets that the trust owns, so assets must be titled in the name of the trust to avoid probate. |
2. When used properly, can avoid probate
Assets that are owned by an irrevocable trust can avoid the probate process. A trust will survive your death, so you can name a successor Trustee in the irrevocable trust who can distribute trust property free of interference from the court after you die. A trust can only distribute assets that the trust owns, so assets must be titled in the name of the trust to avoid probate. |
| 3. A revocable trust can help you control property after you die
Since a revocable trust continues to exist after you pass away, you can put conditions on how trust assets are to be used after you have passed away. These can be age restrictions, incentives for good behavior, or punishments for bad behavior. As long as the conditions do not violate public policy, such conditions can control how your assets are distributed and used after you pass away. A revocable trust can set up conditions on distribution when you are alive, but if you create the trust, control the trust as Trustee, and are the beneficiary of a trust, you will not be protected from creditors or others who have a claim against you. |
3. An irrevocable trust can help you control property after you die
Since an irrevocable trust continues to exist after you pass away, you can put conditions on how trust assets are to be used after you have passed away. These can be age restrictions, incentives for good behavior, or punishments for bad behavior. As long as the conditions do not violate public policy, such conditions can control how your assets are distributed and used after you pass away. In addition, an irrevocable trust can set up conditions on distributing assets while you are alive. An irrevocable trust can prevent distributions to certain people or entities, like a long term care facility, or a creditor. The irrevocable trust must be set up before a debt is accrued to be effective, or within certain time limits for certain government programs, like Medicaid, but using an irrevocable trust can provide protection for your assets. |
| 4. Revocable Trust DO NOT Provide Asset Protection
Simply placing assets in a revocable trust does not create protection from creditors or other judgements. You are able to maintain control over your own assets, as you are the Trustee of your own Trust, and you are the primary beneficiary of your own trust, in most cases. |
4. Irrevocable Trusts CAN Provide Asset Protection
An irrevocable trust can create a legal wall of separation between your and your assets, which allows those assets to be shielded from creditors. This legal wall of separation can help you protect assets from creditors, or from long term medical care costs. The asset protection provided allows the assets to be used in certain ways, while separating you from direct control over the assets. The lack of direct control can be a drawback here, as oftentimes a child or someone like that needs to be put in control of the trust, and not you, in order to get protection for the assets. However, asset protection can be a most useful aspect of an irrevocable Trust. |
Certainly this is not a comprehensive list of all the similarities and differences between a revocable and an irrevocable trust, but this list does address some of the most common similarities and differences that come up. To understand the other differences between the trusts, you should consult with an estate planning attorney who can assess your situation and make recommendations on which type of trust is what you want.
As a short, beginning guide, and knowing the information above, when would it be useful to use each type of trust?
Revocable |
Irrevocable |
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To fully explore what type of trust is right for you, or to further understand the differences, you should consult with an experienced estate planning attorney. You can schedule a free initial consultation by clicking below.
