It can sometimes appear difficult to differentiate between different types of trust. In some cases, different trust types share many of the same characteristics. However, one of the key distinctions that can be made concerns revocability; this can have significant implications for both the legal and tax treatment of the trust.
Revocable and irrevocable trusts are used for very different reasons, and in very different circumstances. As is suggested by the name, a revocable trust allows the settlor to alter the terms of the trust, or cancel it altogether, within his or her own lifetime.
An irrevocable trust, on the other hand, is set in stone upon its establishment; after that point the terms of the trust cannot be changed, and the trust cannot be revoked.
Living & Testamentary Trusts
By definition, revocable trusts must be living (also known as inter vivos) trusts. This term describes a trust that is established during the lifetime of the settlor, as opposed to one that is established posthumously. The latter type will generally be established as a result of provisions made in a will; the settlor is therefore known as the testator in these cases. If the settlor is to have the power to revoke or amend the trust, it must clearly be established during their lifetime.
Irrevocable trusts, on the other hand, can be established either during the settlor’s lifetime or after their death. There are a number of reasons why it may be advisable to establish an irrevocable living trust. Primarily, revocable and irrevocable trusts are treated very differently for tax purposes. In a revocable trust, the settlor can continue to directly draw benefit from the assets that have been transferred.
A house could be placed in trust, for example, and the settlor would continue to be able to live in it. As such, any income that is derived from the assets in trust continues to be taxed as if it were part of the settlor’s estate. This means that there is frequently no immediate tax benefit to the settlor in establishing a revocable trust.
In certain types of revocable trust, however, the settlor gives up both legal and practical ownership of the assets and, as such, they cease to be counted as part of the estate. Thus, irrevocable trusts can be used to mitigate a tax liability while the settlor is still alive.
Revocable trusts, however, are useful estate planning tools. While the settlor tends to be the sole beneficiary while they are alive, it is possible to make provision for a successor beneficiary who will derive benefit from the assets after the death of the settlor. As the legal title to the assets has been given up, they can be passed directly on to the settlor’s intended heirs. As such, a revocable living trust provides a useful opportunity to avoid the probate process, which can be lengthy and expensive. Further information on probate avoidance and living trusts is available elsewhere on this site.
As with any decisions regarding trusts, it is always a good idea to seek independent legal advice when considering whether a revocable or irrevocable trust is the best solution in your circumstances.
My late father has set up a irrevocable trust - does irrevocable mean the trust can never be disbanded? He has set up 2 trusts but they read exactly the same. Not sure what that means.
MGTB - 2-Nov-20 @ 7:29 PM
In 2000AD I set up a Discretionary (FAMILY SETTLEMENT TRUST)with interest of 66% in a property, to be made available on the Owners passing. However in 2011 on advice I wrote to HMRC*and phoned) changing Trust to a BARE TRUST as I wished to ensure that beneficiaries Grandchildren received set amounts up to a certain amount, also I understand it is more tax efficient .The Solicitor advises that I will need a deed of appointment which is fineBUT she says thatthere will need to be an amendment to the Declaration of Trust that I have with the Vendors. (This may be difficult as the vendors are 94 years old and may not be able /or prepared to sign a further deed. ) (I do not want to upset them at their time of life and health.) There is NO variation needed in a second Declaration of Trust so I cannot understand why this should be needed at all. Can you kindly advise.?
junitra - 3-Oct-20 @ 9:33 AM
When I split up with my partner ten years ago we had drawn up a declaration of Trust leaving my current house to him. Since then he has broken that agreement as in, we agreed to maintain a shared bank account into which we both contributed so that a sum of £10,000 be present to maintain the property. Over two years ago he insisted on and did, remove himself from that bank account and no longer made any contributions.
Do I need a Deed of Revocation for that document or because he has already broken the agreement can I leave my house to who I wish now?
Brooks - 21-Aug-20 @ 8:45 AM
I am living in property at the moment owned by my mother and father in law. My father in law put the house in a lifetime trust for meto stay in that house until I die. He has since passed away. Could this be changed at all if my mother in law passes away or could they pay a fee to get the life time trust revoked? Thanks louse
Louise - 31-May-20 @ 9:06 PM
My father set up a family trust a couple of years ago and transferred his property into the trust. In the PREAMBLE in the trust document, it states 'This trust is irrevocable'. However, other sections of the document state that my father is a life tenant, is entitled to any income from the trust, can add beneficiaries and can add or remove trustees. This seems to imply a revocable trust. What determines if a trust is revocable or Irrevocable?
Colin - 22-Aug-19 @ 5:41 PM
My niece and her husband have bought a flat and put their parents in their to live rent free as my niece owes her parents money, and on completion when the mortgage has been paid of she says the property will become the ownership of the parents what if any is the best way of protecting the parents and make sure they get the property in the future
Pablo - 24-Oct-18 @ 11:56 PM
Beth - Your Question:
I am a Trustee for an irrevocable discretionary trust. The settlor, who is still alive, wishes to change the beneficiaries of this trust. Is this permissible?Beth
Sometimes, it will depend on the terms of the trust. You would need to look at the terms, or get a professional to do so.
EstatesOrTrusts - 28-Mar-18 @ 11:29 AM
I am a Trustee for an irrevocable discretionary trust. The settlor, who is still alive, wishes to change the beneficiaries of this trust. Is this permissible?
Beth - 26-Mar-18 @ 1:13 PM
in 2008 i created a discretionary settlement trust.the trust has not had anything in it for several years, nothing taxable and no capital gains tax due.i have had to complete a tax return with zero balance.
the settlement is irrevocable.
alternative arrangements are made in my will for the beneficiaries of the settlement.
can i close the settlement trust down?
elaine - 15-Jan-18 @ 2:07 PM
Is it possible for the settlor and named property owner to be the Trustee of an irrevocable trust. I am also the beneficiary of 50% of the irrevocable trust
Alfie - 6-Apr-17 @ 9:24 AM
My Mother has placed her home (in which I still reside) into an irrevocable trust - my sister and I holding such on trust for the benefit of each other with my Mother being the main beneficiary for live.
Mother has since found herself in debt.
My understanding is that if the debt is outstanding upon Mother passing, such effectively dies with her as she has no estate.
Is this the case?
Earl - 28-Nov-16 @ 11:49 PM
A number of years ago my mother (Settler) set up a Irrevocable Property Trust with my sister and myself as the sole beneficiaries with two trustees who are solicitors. This trust was set up to protect he home so that she would have security in her old age.
She is now 89 years old, mentally aware but her eye sight is failing.My mother, my sister and myself all believe that the trust should now be terminated so that her house can be sold to provide more suitable accommodation in case she eventually goes blind. We have asked for suggestions and options from the trustees but they have not suggested that we can terminate the trust.
Do we have the right to terminate it if the settler and beneficiaries al agree that it is in her interest?
Is there a legal process to terminate the trust?
Can the Trustees object/ too or prevent this?
Can the trustees be replace by my sister and myself?
Bryan - 31-Aug-16 @ 9:08 AM
Trustee of a Trust - Your Question:
How to change the beneficiary of a Trust? My parents (still living) put a let property into Trust in 2008.Myself and my siblings are the beneficiaries should the property be sold.The income beneficiaries should likewise have been myself and my siblings, however I asked that my share go to my children instead until the youngest left education; he has now finished school (age 16) and is starting a paid apprenticeship.Having now come to deal with the change in beneficiary from my children to myself, I see on the Trust Deeds that the Trust is "irrevocable". Also there is no written provision in the Trust Deed for this change.I have contacted two solicitors: one informs me that this change can be done by a Deed of Arrangement, as I am a named beneficiary, the other informs me that this matter is complex and suggested I book a two-hour appointment to go over the situation.I would greatly appreciate some straightforward plain English advice on how to proceed and any recommendations for an experienced specialist Trust solicitor would be useful.
Sorry but you have not said what type of trust it is. Usually the beneficiaries of an absolute or irrevocable trust cannot be changed. If however, you asked that your share went to your children until the youngest left education this should have been written into the trust, you say that it isn't so it's not really something we have enough information to give any guidance on.
EstatesOrTrusts - 23-Aug-16 @ 12:52 PM
How to change the beneficiary of a Trust?
My parents (still living) put a let property into Trust in 2008.
Myself and my siblings are the beneficiaries should the property be sold.
The income beneficiaries should likewise have been myself and my siblings, however I asked that my share go to my children instead until the youngest left education; he has now finished school (age 16) and is starting a paid apprenticeship.
Having now come to deal with the change in beneficiary from my children to myself, I see on the Trust Deeds that the Trust is "irrevocable". Also there is no written provision in the Trust Deed for this change.
I have contacted two solicitors: one informs me that this change can be done by a Deed of Arrangement, as I am a named beneficiary, the other informs me that this matter is complex and suggested I book a two-hour appointment to go over the situation.
I would greatly appreciate some straightforward plain English advice on how to proceed and any recommendations for an experienced specialist Trust solicitor would be useful.