Q: What is a trust?
You can think of a trust as a container that holds your property. You place property in a trust by titling the asset in the trust's name. Property in a trust is managed by a person called a "trustee."
Trusts can be either revocable or irrevocable.
Q: What's the difference between a revocable and an irrevocable trust?
The primary difference between a revocable trust and an irrevocable trust is how much control you retain over the trust after its creation. With a revocable trust, you retain the power to modify or revoke the trust. Revocable trusts are useful as "will substitutes" that allow your property to pass to your desired beneficiares outside of probate when you die, which can save your heirs the time and expense of going through the probate process. However, because of the control you retain, they typically cannot protect your assets from creditors, and they will not help you avoid estate taxes.
By contrast, with irrevocable trusts, your power to modify or revoke the trust after its creation is very limited. One use of an irrevocable trust is to protect assets from creditors. An irrevocable trust can also be used to make large lifetime gifts, which is useful if you need to reduce your federal "gross estate" for estate tax purposes.
Q: Why might I want a trust?
As mentioned above, revocable trusts can be used as a "will substitute" that can pass property to your heirs without probate. This can save your heirs the time and expense of needing to go through the probate process.
Irrevocable trusts can be useful if you need to protect your assets from creditors, or if you need to make large lifetime gifts to reduce your federal "gross estate" for estate tax purposes.
Q: I've heard somewhere that a revocable trust is something that everyone should have, and that I can avoid probate entirely by using one. True?
Part true and part false. It is true that property passing through a trust avoids probate when you die. However, this has to be taken with a grain of salt. Many people who create a revocable trust then forget to put assets into the trust as they acquire them, which means that there is a very good possibility that some assets will need to be probated.
It is entirely false that "everyone" should have a revocable trust, although this is a frequent refrain at many estate planning seminars put on by attorneys. The unfortunate and dirty truth is that, generally speaking, trusts take more time to produce than a will. More time spent means more time a lawyer can bill you for, which is why many less scrupulous attorneys extole the virtues of revocable trusts when they are looking for potential clients.
A much better answer is that "some people" need revocable trusts. Whether you are in the category of "some people" is something an attorney cannot determine without talking to you.