Revocable vs Irrevocable Trust
The fundamental distinction in trust law: can you change your mind? Revocable trusts offer flexibility; irrevocable trusts offer protection. Here's how to choose.
The Key Difference
| Feature | Revocable Trust | Irrevocable Trust |
|---|---|---|
| Can you amend or revoke? | Yes — settlor retains power to modify or dissolve | No — once created, generally cannot be changed |
| Asset protection | None — assets still belong to settlor for creditor purposes | Strong — assets are outside the settlor's estate |
| Estate tax benefits | None — assets included in settlor's taxable estate | Yes — assets may be removed from taxable estate |
| Control | Settlor retains full control | Settlor gives up control to the trustee |
| Probate avoidance | Yes | Yes |
| Privacy | Yes — trust terms stay private | Yes — trust terms stay private |
| Complexity | Simpler to set up and manage | More complex — separate tax ID, separate returns |
Revocable Trusts
A revocable trust (also called a living trust or inter vivos trust) allows the settlor to change the terms, add or remove assets, or dissolve the trust entirely at any time. The settlor typically serves as their own trustee during their lifetime, then names a successor trustee to manage distributions after death.
Pros
- Flexibility — change terms whenever you want
- Control — serve as your own trustee
- Probate avoidance — assets pass without court involvement
- Privacy — trust terms are not public record
- Incapacity planning — successor trustee manages if you become incapacitated
Cons
- No asset protection — creditors can reach trust assets
- No estate tax savings — assets are still in your taxable estate
- No Medicaid planning advantages
Irrevocable Trusts
An irrevocable trust cannot be modified or revoked once created (though some states allow modifications under limited circumstances). The settlor gives up control of the assets to the trustee, who manages them for the beneficiaries. Because the assets are no longer the settlor's, they enjoy stronger legal protections.
Pros
- Asset protection — creditors generally cannot reach trust assets
- Estate tax reduction — assets may be removed from the taxable estate
- Medicaid planning — can help qualify for long-term care benefits
- Spendthrift protection — protects beneficiaries from their own poor decisions
- Special needs planning — preserves government benefits for disabled beneficiaries
Cons
- Loss of control — you cannot change your mind or access assets
- Complexity — requires separate tax ID and annual tax returns
- Irreversibility — difficult or impossible to undo
- Gift tax consequences — funding may trigger gift tax filings
When to Use Each
Choose revocable if you want:
- Probate avoidance with maximum flexibility
- To keep control of your assets
- A simple estate plan
Choose irrevocable if you want:
- Asset protection from future creditors
- Estate tax planning (for larger estates)
- Medicaid eligibility planning
- Special needs protection for a beneficiary
- Generation-skipping wealth transfer
The Middle Ground
Some trusts have features of both. For example, an irrevocable trust with a trust protector who can modify certain terms for tax or legal changes. Or a revocable trust that becomes irrevocable at death. State laws vary significantly — what's possible in one state may not be in another.