Revocable vs. Irrevocable Trust: Understanding the Differences and Implications

In international wealth structuring, the use of trusts can be a valuable tool—particularly for succession planning, asset protection, and tax efficiency.

In simple terms, a trust is a legal instrument through which a settlor transfers assets to a trustee, who manages them for the benefit of one or more beneficiaries, according to the provisions set out in the trust deed (constitutive document).

A key decision in this context is the choice between establishing a revocable trust or an irrevocable trust. This choice directly impacts the settlor’s level of control, the effectiveness of asset protection, and the tax treatment of the structure—particularly relevant for Brazilian tax residents.

Aspect	Revocable Trust	Irrevocable Trust
Concept	The settlor retains the right to revoke or amend the terms of the trust at any time during their lifetime.	Once established, the settlor cannot amend, terminate, or reclaim the transferred assets.
Control	High. The settlor may change beneficiaries, replace the trustee, or dissolve the trust.	Low. The settlor transfers full and irreversible control to the trustee.
Asset Protection	Limited. Since the settlor retains control, the trust assets may be subject to creditor claims or legal disputes.	Strong. As the settlor no longer controls the assets, they are no longer part of their estate. This provides protection against legal, succession, and business-related risks.
Tax Consequences in Brazil	The assets are still considered to belong to the settlor. Therefore, the tax authorities view any income as taxable to the settlor directly.	Generally, the assets cease to belong to the settlor’s estate and are attributed to the beneficiaries.
Succession	The trust may become irrevocable upon the settlor’s death, allowing the trustee to continue managing the assets, or it may be terminated and the assets distributed to the beneficiaries.	Avoids probate proceedings for foreign assets and enables multigenerational estate planning.

The choice between the two structures depends on the settlor’s wealth management and family objectives. Generally, when greater flexibility and the ability to retain direct control over assets are desired, a revocable trust is the most suitable option. However, when the priority lies in asset protection, succession certainty, and long-term tax planning, an irrevocable trust tends to be more effective.

Aurora provides comprehensive support in structuring trusts tailored to each client’s needs, assisting from the selection of the ideal model to implementation and ongoing management of fiduciary structures in the British Virgin Islands (BVI).