An irrevocable trust cannot be changed once it is in effect but a revocable trust can be modified. While a revocable trust is designed to eliminate probate, an irrevocable trust can eliminate estate taxes and offer asset protection. Both are inter vivos trusts i.e. trusts that go into effect during an individual’s lifetime.
As the benefactor of an irrevocable trust no longer technically owns the property in the trust, it is not included when calculating estate taxes on their death. The property can be passed to an heir without going through probate.
Properties in revocable trusts are included when calculating estate taxes. They can be passed to an heir without going through probate. Revocable trusts can also be used in cases of mental illness, as they can be transferred straight to the trustee without a lengthy court case.
edit Asset protection
Properties in an irrevocable trust are protected if the owner is sued.
Properties in a revocable trust have no creditor protection.
An irrevocable trust cannot be changed and the property cannot be retrieved.
A revocable trust can be modified through a trust agreement or revoked entirely through an amendment and restatement.
Irrevocable trusts are used by individuals who wish to reduce their payment of estate tax, and who wise to protect their assets from creditors. Finally, they can be used for charitable estate planning – if the trustmaker transfers the assets into a charitable trust while they are still alive, they will receive a charitable income tax deduction in the year the transfer is made.
Revocable trusts are usually used by individuals who wish to plan for a mental disability, as assets in these trusts can be managed by an individual’s Disability Trustee instead of a court-supervised guardian. They can also be used to avoid probate, which is the court-supervised process of locating and determining the value of a deceased person’s assets, paying their final taxes and then distributing the remainder to heirs. Instead, assets in a revocable trust will pass directly to the beneficiaries. Finally, they can be used to keep the details of property and its beneficiaries private.