If you’re considering creating a trust, it’s important to know the difference between a revocable and an irrevocable living trust. A revocable trust can be changed, revoked, or terminated at any time by its creator, whereas this cannot be done with an irrevocable trust until it becomes effective, which is generally after the creator dies and the will has gone through probate.
Simply put, if you put your property into a revocable trust, you can take the property out at any time and you can also change the terms and conditions about what the beneficiaries will receive. An irrevocable living trust is a different story. If you transfer some or all of your property to an irrevocable living trust, you are giving up all your rights to that property and transferring them to the trust. It’s the same as giving the property to another person with no strings attached.
There are many reasons to transfer property to an irrevocable trust. One common reason is to satisfy a property settlement as a result of a divorce or other court decree to hold certain property in trust, especially when minor children are the intended beneficiaries. Elderly people who are concerned about the high cost of nursing homes may transfer their property to an irrevocable trust at least five years before applying for Medicaid benefits. Many wealthy people also use irrevocable trusts to protect their property from the claims of creditors or to insulate their assets, should they be vulnerable to law suits that result in high monetary judgments. Perhaps one of the most common uses for an irrevocable living trust is the avoidance of federal estate taxes.