Revocable vs. Irrevocable Trusts

Revocable trusts

A revocable trust, often called a living trust, lets the settlor keep control. The settlor can add or remove property, change beneficiaries or cancel the trust. Under Uniform Trust Code § 602(a), a trust is revocable unless its terms expressly say it is irrevocable, though that rule applies only to trusts created after a state adopted it. California has the same default rule in Probate Code § 15400.

People mainly use revocable trusts to avoid probate and to plan for incapacity, because a successor trustee can step in without a court case. A revocable trust usually becomes irrevocable when the settlor dies.

What a revocable trust does not do

A revocable trust generally does not protect property from the settlor’s own creditors. Under Uniform Trust Code § 505(a)(1), while the settlor is alive, a revocable trust’s property is subject to the claims of the settlor’s creditors, and California Probate Code § 18200 says the same. For income tax purposes, a revocable trust is usually treated as owned by the settlor under the grantor trust rules, 26 U.S.C. §§ 671 to 679.

Irrevocable trusts

In an irrevocable trust, the settlor gives up the right to take the property back or change the terms alone. Even so, an irrevocable trust is not always permanent. Under Uniform Trust Code § 411, a noncharitable irrevocable trust may be modified or ended with the consent of the settlor and all beneficiaries, and § 412 lets a court modify it in some situations. Many states also allow decanting, a trustee’s transfer of property to a new trust with different terms.

People use irrevocable trusts for estate tax planning, gifts, life insurance, special needs planning and some kinds of asset protection.

Side by side

• Control: revocable, the settlor keeps it; irrevocable, the trustee controls under the terms.
• Changes: revocable, any time; irrevocable, only by consent, court order or a power in the document.
• Creditors of the settlor: revocable, can reach the property; irrevocable, may be limited, depending on the terms and state law.
• Probate: both avoid probate for property that is properly transferred into the trust.
• Taxes: revocable, taxed to the settlor; irrevocable, may be a separate taxpayer or a grantor trust, depending on the terms.

Trust law is state law. More than 30 states have adopted versions of the Uniform Trust Code, while others, including California, have their own trust codes. Read your state’s statute, and talk to a licensed estate planning attorney before you sign or fund a trust.

Researching revocable vs. irrevocable trusts in your state

To research revocable vs. irrevocable trusts for a real matter, start with the primary sources. For example, read the statute, the rule and the documents in your own file. Then look for recent appellate decisions from your state, because they control how local courts read the law. After that, compare what you found with the federal rules that may also apply. Our state procedures guide and the Research Center can help you find and check each source.

Sources and further reading

Official sources used on this page:

• legislature.maine.gov
• law.cornell.edu

Related reading on Lawtopolis:

• How a Trust Is Created: Formation Requirements
• Protecting Property in a Trust