Both types of trusts allow you to avoid the burden of probate.
Revocable trusts are pass through entities and cannot be used to minimize taxes.
Only irrevocable provide asset protections. An RLT can be revoked anytime by a judge.
Both types allow you to anonymously title assets, i.e. in the trust's name rather than yours.
Revocable and irrevocable trusts are often confused because their names are so similar.
What is a Trust?
A trust is an entity which is established by the settlor (creator), is managed by a trustee (generally a private trust company) and has beneficiaries. For a revocable trust, these positions are generally separated. An asset protection trust will allow you to be all three, and thus allow you to create a trust, control it and be the beneficiary while enjoy asset protection and other benefits.
Revocable Trust Overview:
A revocable trust is generally only used to avoid probate and to anonymously title assets. These uses are referred to as a living trust and a personal property trust respectively.
A revocable trust allows you, the trustor (also called the settlor or grantor), to maintain the ability to dissolve the trust completely at anytime, for any reason, while you are alive. Note, this means a judge may also order the trust be dissolved.
Irrevocable Trust Overview:
An irrevocable trust cannot be amended as easily as a revocable trust. The primary purpose of this barrier is to place an obstacle between you and your creditor(s). The trust is its own person in the eyes of the law. While the trust cannot be revoked, it can be amended with beneficiaries being added and removed at anytime. Learn more about setting up an asset protection trust here.
A revocable trust offers no asset protection benefits. As mentioned above, a reovocable trust may be revoked at anytime, including by a judge. This means the assets return to the trust's creator and may be used to pay creditors.
An irrevocable trust cannot be revoked except under infrequent circumstances. Asset protection begins immediately and after two years transfers into the trust cannot be contested. That is, the trust owns the asset and it cannot be taken to satisfy personal debts.
A trust is considered its own person under the eyes of the law and accordingly pays its own taxes. By establishing a trust in a state with no income taxes you can minimize your overall tax burden. A revocable trust is taxed as a pass through entity, with no changes in the taxes which are due.
Both trusts may be used to title assets not using your name. The beneficiary of a revocable trust is easier to ascertain via court order. It is more difficult to pierce an irrevocable trust's privacy. Plus, in the cases where privacy is lost, this does not diminish the asset protection benefits because the trust is still the owner.
An asset protection trust separates the ownership of assets from enjoying their benefits. The trust safely holds your assets and cannot be revoked by creditors or anyone else.
Responsibly Provide For Beneficiaries
A revocable trust provides your beneficiaries with an outright inheritance. This is irresponsible for a few reasons. The first is because your heirs may experience their own credit events, such as a car wreck or bankruptcy, and your life's work will be at risk. The other risk is that of unintended beneficiaries. That is, your heir marries and then divorces. Their former partnere is entitled to half of everything including their inheritance. An asset protection trust avoids these downfalls.
An irrrevocable trust provides two major savings. The first is through shifting income to a lower tax jurisdiction. This saves on state taxes. Income inside the trust can also be allocated in ways designed to minimize taxes during your lifetime. The second is through the lowering of insurance premiums. Those in high risk industries often pay exorbitated insurance premiums. Separating assets from one another, and from your name, lowers your risk profile and the required insurances.