What is a Revocable Trust? | Definition of a Revocable Trust

6 Feb 2020

A revocable trust, often known as a living trust, is a trust account that can be changed by the grantor. Living trusts are often created by grantors for the benefit of their children, while they are still alive. Once the grantor passes on, a living trust generally becomes an irrevocable trust, as the grantor can no longer make changes. Revocable trusts are useful because they hold assets separately. Neither the grantor nor the beneficiary needs to pay taxes on the assets that are held within the trust, only on money that is paid out of the trust. Under a revocable trust, the grantor will be able to pay out money like an “allowance” to the beneficiary, with tax advantages. The trust may not need a separate EIN because it is still under control of the grantor.

Irrevocable trusts are usually better for beneficiaries because the trust cannot be “revoked” or changed once it has been established. But grantors usually prefer revocable trusts during their lifetime because they are able to revoke the trust. Either way, both irrevocable and revocable trusts may be established with requirements that the beneficiary must uphold.