To Revoke or Not Revoke...That is the Question

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While a revocable trust can be changed after it is created, an irrevocable trust is a trust that cannot be changed or amended after it is created. In other words, the terms are "written in stone". A careful drafter of an irrevocable trust will be able to implement some provisions which provide for some flexibility in the future, but there are limits as to how much can change and you will lose control over the trust assets, generally speaking.

So why would you create an irrevocable trust if you can't change anything? People and plans change, right? A properly drafted and operated irrevocable trust will be excluded from your taxable estate. Thus, for example, you could purchase a large life insurance policy to be owned by the trust, have the death benefits paid to the trust and then to your selected beneficiaries. While normally life insurance proceeds are included in a taxable estate, by having the irrevocable trust own the policy, those proceeds are fully excluded from your taxable estate and pass to your beneficiaries free of estate tax.

Other assets besides life insurance can be transferred into an irrevocable trust, although you'll have to consider the impact of gift taxes on such a transfer with your advisor.

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