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Revocable Living Trust

A living trust can be revocable or irrevocable. Most living trusts are revocable.

In fact, when people refer to the term "living trust," they are almost always talking about a "revocable living trust." See What is a Living Trust?

[The word "revocable" is so often misspelled, that it is worth listing the two most common misspellings: revokable living trust and revocable living trust. Hopefully, now, even the spelling-challenged, will be able to find this page when they search on Google:)]

So, what exactly is a revocable living trust?

A living trust, of course, is a trust that you can put some or all of your assets into – while you are living.

A revocable living trust is a living trust that can be amended or revoked by its creator or settlor at any time.

If you come across a term you don't understand, check out
Living Trust Definitions

Normally, you would create the trust and name yourself as the trustee and beneficiary. You would give yourself full discretion to determine how the trust assets will be used.

It really is much the same as how you control your assets without a trust. It's just that once the trust is funded, the assets are titled in the name of the trust. And, again, you can amend, add or withdraw assets, or even revoke the trust at any time; for any reason.

An irrevocable living trust is a living trust that cannot be amended or revoked by its creator. Once assets are transferred into it, the creator/settlor of the trust no longer controls them.

Obviously, most people have neither the need, nor desire, to irrevocably give away some of their assets during their life. So, the vast majority of living trusts are revocable living trusts.

The downside to a revocable living trust is – taxes.

Because the trust owner controls the revocable living trust, its assets are considered to belong to the trust owner. Therefore, for income tax purposes, any income generated by assets in the trust is included as taxable income to the trust owner. [This is why you probably should not get a separate tax ID for the revocable trust as that might confuse matters.]

Also, for the same reason, the assets of a revocable living trust will be included in its owner's estate for estate tax purposes. This is really just common sense.

So, tax savings is the reason some people might opt for an irrevocable living trust for, at least some, of their assets. An irrevocable living trust could be used to save income or estate taxes. To find out more about that, read Irrevocable Living Trust.