Question

Difference between revocable and irrevocable trust with examples. 2 pages

Answer 1

Answer:

A trust is a contract between the settler and trustee, formed for the benefit of a third party. In this contractual arrangement wherein the trustee holds the property of the settler, for the sake of the one or more beneficiary. There are two types of trust , i.e. revocable trust-a trust which can be terminated anytime till the author survives and irrevocable trust- a trust that cannot be canceled once created.

Differences between Revocable and Irrevocable Trusts:

BASIS FOR COMPARISON	REVOCABLE TRUST	IRREVOCABLE TRUST
Meaning	A trust in which the cancellation is possible during the lifetime of the author is revocable trust.	A trust whose cancellation is not possible after it goes into effect is known as an irrevocable trust.
Control	Control and power on the asset transferred remains with the settler.	Control and power on the asset transferred does not remain with the settler.
Objective	Eliminate probate.	Eliminate estate tax
Alteration of terms	Can be altered anytime.	Cannot be altered.
Protection of assets	No	Yes

Revocable trust refers to the trust which can be modified and canceled at anytime during the life of the trust owner. The trust serves two purposes at the same time, i.e. first the trust owner will remain the owner of the asset transferred and exercise control over it, second, the property will be handed over to the named beneficiary, after his death. As the asset belongs to the grantor, it is taxable. The main objective of the revocable trust is to avoid the probate process, i.e it ensures easy transfer of the asset to the intended beneficiaries.

A irrevocable trust is a trust that cannot be changed /modified /altered /terminated by the grantor, once the trust deed is signed and comes into effect. Once the asset is transferred to the trust, it cannot be reversed. Therefore, the grantor, cannot exercise control over the asset. The major reason behind entering into an irrevocable trust is that it offers you ultimate asset protection from the creditors as the asset does not belong to the trust owner anymore.

Key Differences Between Revocable and Irrevocable Trust:

1. A revocable trust is a kind of trust which can be canceled at any time, till the survival of the author. An irrevocable trust is a kind of trust cannot be canceled, once it comes into effect.

2. In spite of the transfer of the asset, the trust owner can exercise his control and power over the property transferred. On the other hand, in an irrevocable trust, the settler cannot exercise his control and power on the asset within the trust.

3. The basic purpose of the information of the revocable trust is to eliminate probate and in the case of irrevocable trust is to provide protection against the estate tax, as the property transferred into the trust does not remain part of the author's estate.

4. The terms of the contract can be altered or amended at any time, during the life of the trust owner, in a revocable trust, while the terms of an irrevocable trust cannot be modified.

5. The irrevocable trust provides protection of assets from the creditors. Conversely, revocable trust does not provide such protection of property.