When Does a Revocable Trust Become Irrevocable?

Generally, a revocable trust becomes irrevocable -- its terms no longer changeable -- upon the death of its grantor, or creator. Until that time, the grantor can change the terms of the trust, add assets and sell assets. For the grantor, it works pretty much the same way as it would if he managed assets titled in his own name, only now they are titled in the name of the trust. The revocable trust is also known as a "living trust" or "inter vivos" trust.

Besides the grantor -- also known as the settlor -- a revocable living trust requires a trustee. The trustee, who is often the grantor or a financial institution, manages the assets. If the trustee is the grantor, a second trustee is named, and that person or institution can manage the trust once the grantor dies or becomes incapacitated. Beneficiaries are those who profit from the trust's operation. During his lifetime, the beneficiary may be the grantor, but once he dies and the trust becomes irrevocable, the beneficiary may be the spouse, children, individuals named as beneficiaries or charitable institutions.

Trust assets avoid probate after the grantor's death, but that doesn't mean these assets aren't subject to creditors and taxes. Assets owned solely by the deceased and not included in the trust are subject to probate. Most trusts include a "pour-over" will, stating that such assets should be transferred to the trust's trustee at the time of the grantor's death.

The grantor doesn't necessarily have to die for the trust to become irrevocable. If he becomes mentally incapacitated, the trust should include a provision for the management of trust assets by the trustee, without the need for a court order. A letter from the grantor's doctor certifying his incapacity may suffice.

If you're truly wealthy, you may want to consider setting up an irrevocable rather than revocable trust. Once this trust is established, it can't be changed. Such a trust is complicated and requires professional administration, but may save your estate some taxes. An irrevocable trust rather than a revocable trust may be prudent if you want to ensure care for a dependent with disabilities. It may also shield some assets from professional liability -- but not from creditors if there's evidence that a credit problem was the reason for creation of the irrevocable trust.