Exploring the Difference: Revocable vs Irrevocable Trust in Nevada
Trusts are a powerful estate planning tool, enabling individuals to protect assets, provide for loved ones, and more. When you create a trust, you decide whether to make it a revocable vs. an irrevocable trust.
One primary difference is flexibility: the trust creator can modify or cancel a revocable trust, while the creator generally cannot modify or cancel an irrevocable trust. Another difference between revocable and irrevocable trusts in Nevada is the ability to shield assets from creditors or taxes, which irrevocable trusts typically accomplish much more effectively than revocable trusts.
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What Is a Trust?
A trust is a legal arrangement that allows a person to transfer ownership of assets to another party for the benefit of a third party. Trusts are often used in estate planning to manage assets, avoid probate, reduce estate taxes, and protect vulnerable beneficiaries.
The following terms are essential to understand when discussing trusts:
- Grantor—the person who creates and funds the trust, sometimes called a settlor or trustor;
- Trustee—the person or entity responsible for managing trust assets;
- Beneficiary—the person or group who benefits from the trust by receiving distributions or other benefits; and
- Trust instrument—the legal document that outlines the trust’s terms, including how to manage assets, who benefits, and when and how distributions should occur (also called a trust agreement).
Trusts are highly customizable and may serve various purposes depending on the grantor’s needs and wishes. One of the most important distinctions between trusts is whether the grantor creates them when alive, living trusts, or after death, testamentary trusts. Usually, however, the most crucial distinction is whether they are revocable or irrevocable.
Creating a Revocable Trust in Nevada
Revocable trusts allow grantors to maintain control over the trust and its assets. Without asking anyone else, the grantor can:
- Modify trust terms,
- Change beneficiaries, or
- Revoke the trust entirely.
Since the grantor retains the power to revoke the trust, which they cannot do after death, revocable trusts are a type of living trust.
Related: 7 Things You Should Not Put in a Living Trust
Nevada Revocable Trust Requirements
In order to be valid, a revocable trust must satisfy several Nevada revocable trust requirements, including:
- The grantor manifesting a clear intention to create a trust, such as in writing or an explicit oral agreement;
- At least one trustee and beneficiary, who cannot both be the grantor if the trust includes no other trustees or beneficiaries;
- Amendment and revocation clauses establishing the grantor’s right to change or revoke the trust, without which the law regards the trust as irrevocable;
- Instructions for administration and asset distribution; and
- Funding of the trust by transferring property into it.
These requirements mean oral trusts can be legally valid, though oral trusts are frequently challenging to enforce. Notably, you must establish trusts involving real estate through a written document signed by the grantor.
Revocable Trust Benefits
Benefits of creating a revocable trust in Nevada include:
- Avoiding probate, allowing assets to pass directly to beneficiaries;
- Planning for the potential incapacity of the grantor; and
- Simplifying administration through clear instructions for asset management and distribution.
Revocable trusts are flexible and valuable tools for families who want to simplify estate planning while retaining use of and control over assets during life. However, they do not provide asset protection or tax advantages.
Creating an Irrevocable Trust in Nevada
Unlike a revocable trust, an irrevocable trust’s grantor generally cannot alter or revoke the trust, at least not unilaterally, once it is created and funded. While the grantor can establish trust terms during the creation process, modifications typically require consent from all beneficiaries or a court order after creation.
Nevada Irrevocable Trust Requirements
Nevada irrevocable trust requirements include:
- A clear intention to create a trust from the grantor;
- At least one trustee and beneficiary;
- Clear instructions for administration and asset distribution; and
- Actual funding, including transfer of asset ownership to the trust that removes the grantor’s control over the property.
For an irrevocable trust, providing clear instructions may involve, for example, including:
- A spendthrift provision, which protects trust assets from the beneficiary’s creditors and prevents early or irresponsible access to funds;
- A trustee discretion clause, which gives the trustee authority to decide how and when to make distributions;
- Irrevocability language stating that the trust cannot be modified or revoked; or
- Tax allocation provisions detailing how the trust will handle income or estate taxes.
The trust’s terms help ensure it functions as intended.
Irrevocable Trust Benefits
Irrevocable trusts offer different benefits than revocable trusts, often including:
- Asset protection to shield trust property from the grantor’s or a beneficiary’s creditors;
- Removing high-value assets from the taxable estate, meaning the assets are excluded from the value of the estate for estate tax purposes;
- Protecting eligibility for government benefit programs such as disability benefits, Supplemental Security Income (SSI), and even Medicaid long-term care coverage; and
- Providing specialized planning options, such as long-term gifting, life insurance planning, or charitable contributions.
Irrevocable trusts often enable individuals to achieve long-term financial, tax, or asset protection goals.
Creating a Revocable vs. an Irrevocable Trust
Choosing between a revocable and an irrevocable trust depends on your priorities, particularly as they relate to:
- Degree of grantor control retained. A revocable trust allows a grantor to modify or cancel it. An irrevocable trust does not, except in rare circumstances.
- Asset protection. Only an irrevocable trust can shield assets from creditors or other liabilities.
- Estate taxes. An irrevocable trust can help reduce estate taxes by excluding trust assets from the taxable estate. A revocable trust cannot.
- Flexibility. Revocable trusts offer greater flexibility during the grantor’s lifetime; irrevocable trusts require a long-term commitment.
Each trust type has benefits and drawbacks, which an estate planning lawyer can explain in greater detail.
Take the Next Step with Mills & Anderson
If you are considering creating a trust in Nevada, the attorneys at Mills & Anderson are here to help. We provide clear legal guidance on all aspects of revocable and irrevocable trusts, from drafting to funding and beyond, helping our clients make informed decisions.
We offer direct access to seasoned attorneys who can help you provide for loved ones, protect your legacy, and secure peace of mind. Contact us to schedule your consultation.
