Key takeaways

• Revocable and irrevocable trusts are used within estate planning to help avoid probate and control how assets are managed and distributed.
• A revocable trust can be amended or revoked, offering flexibility and ongoing control over trust assets. While simple to set up, it may require periodic review.
• An irrevocable trust may require the grantor to give up ownership and control over assets, but in turn may minimize estate taxes and help protect assets from creditors.

Estate planning is highly individual. The idea of what it means to pass down a lasting legacy is uniquely defined by each person. For the third of Americans (32%) planning to leave an inheritance, trusts can help avoid probate, reduce estate taxes, and control how assets are distributed. The two main types, revocable and irrevocable trusts, can support broader estate plans while helping achieve specific financial goals.

Revocable vs. irrevocable trust: Key differences

A prominent difference between a revocable and an irrevocable trust is ongoing control and flexibility. Revocable trusts can typically be amended or revoked by the person who opens and funds the trust, called a grantor, while irrevocable trusts cannot. An irrevocable trust generally requires the grantor to give up defined ownership or control. The exact rules vary depending on how the trust is funded and administered, applicable tax rules, and state law.

Below is a quick breakdown of the key differences between revocable and irrevocable trusts:¹

What is a revocable trust?

A revocable trust, commonly referred to as a revocable living trust, is one that a grantor creates and then maintains control throughout their lifetime. The grantor has the flexibility to add and remove assets and can also change the trustee and beneficiaries. The trust becomes irrevocable when the grantor dies or becomes otherwise incapacitated, meaning its terms and beneficiaries are no longer amendable. The successor trustee steps in to manage the trust and ensure that assets are distributed as intended.³

A revocable trust is typically used for:⁴

• Maintaining control of assets during the grantor’s lifetime
• Changing beneficiaries or distribution instructions as life events occur
• Allowing a trustee, or fiduciary, to manage trust assets during incapacity
• Providing greater privacy than the public probate process
• Setting instructions for how and when beneficiaries receive assets

Read more: What is a fiduciary advisor?

Potential Benefits of a revocable trust

Revocable trusts can offer several benefits in estate planning, including:⁵

• Avoiding probate can lower associated costs and can help maintain privacy
• Grantor maintains control over the trust, giving them greater flexibility to make amendments in response to life events
• Can be relatively simple and inexpensive to set up compared to a irrevocable trust
• A trustee can be assigned to manage the trust if the grantor becomes incapacitated or passes away

Potential Drawbacks of a revocable trust

Because a grantor still owns the assets held in a revocable trust, there may be certain drawbacks, including:⁶

• Grantor must continue to manage the trust, which may involve higher professional fees associated with ongoing funding or retitling work
• Does not typically reduce or eliminate estate taxes
• No automatic protection from creditors

What is an irrevocable trust?

An irrevocable trust is a type of trust with greater restrictions on changes once it’s established. These trusts can be used to transfer assets to beneficiaries, often other individuals or organizations. When the grantor moves assets into the trust, they no longer belong to the grantor and can’t be easily taken back. In return, these assets may be protected from creditors and shielded from federal estate taxes, lowering the grantor’s tax liability. ⁷

An irrevocable trust is typically used for:⁸

• Supporting certain estate- and gift-tax planning strategies
• Holding life insurance for a specific estate planning purpose
• Making planned gifts to charities
• Providing for a beneficiary with special needs
• Protecting and managing assets for beneficiaries over time
• Protecting assets from creditors, especially professional liability lawsuits

Potential Benefits of an irrevocable trust

Irrevocable trusts can have major advantages when it comes to estate planning, including:⁹

• Avoiding probate can lower associated costs and can help maintain privacy
• Supporting specific estate planning goals, including protecting assets from certain disputes, pursuing specific tax treatments, and other special needs.
• Assets are protected from creditors, professional liability, and other lawsuits
• Trust assets may be excluded from the grantor’s estate, which may help them qualify for income or asset-based government benefits, including long-term care assistance

Read more: Taxes on inheritance & how to avoid them

Potential Drawbacks of an irrevocable trust

Despite their advantages, irrevocable trusts can have certain drawbacks, including:¹⁰

• Grantor loses ownership of the assets held in the trust, making these assets inaccessible in case of financial emergencies or life events
• Grantor does not have the flexibility to make unilateral changes to the trust, such as changing beneficiaries
• Can be expensive to set up as the process may involve customization and the professional oversight of an estate planning attorney
• May be subject to income taxes; the trustee is responsible for filing federal and state taxes for the trust when applicable

Can you have both a revocable and an irrevocable trust?

Yes, it’s possible to have more than one trust as part of an estate plan. Using both a revocable and an irrevocable trust can help manage and pass down assets for different purposes.¹¹

For example, substantial charitable donations can be placed in an irrevocable trust and distributed over time. Separate irrevocable trusts can also be set up for family members or friends to help ensure they receive their inheritance. This can reduce estate taxes for the grantor and help protect assets from creditors or from misuse.

Other assets, such as real estate and investment accounts, can be placed in a revocable trust.¹² By doing so, these assets remain accessible to the grantor while still supporting incapacity planning and avoiding probate.

What to do before setting up or changing a trust

Setting up or amending a trust requires careful planning and preparation. Consider taking the following steps beforehand to ensure alignment with your overall estate plan and financial goals:¹³

1. Identifying the goal of setting up the trust. Is it to minimize estate taxes? Or to protect assets from creditors or misuse? There may be multiple goals.
2. Gathering and reviewing existing documentation. This may include existing trusts and wills, powers of attorney, healthcare documents, and beneficiary designations.
3. Consulting an estate planning attorney. A legal professional can help identify whether a revocable or irrevocable trust is better for your situation. Estate planning attorneys do the work of implementing trusts while considering what assets to include, how best to fund and maintain the trust, and appropriate trustees and beneficiaries.

Consider revisiting any trusts periodically and after significant life events, such as marriage, divorce, or illness. This may involve coordinating with your estate planning attorney or even just reviewing documentation to make sure it’s up to date.

Read more: How to Set Up a Trust Fund

Frequently asked questions

Can you change a revocable trust to an irrevocable trust?

Yes, a revocable trust can generally be changed to an irrevocable trust when the trust permits amendments or revocations. This is typically done by an estate planning attorney, or it may happen by default when the grantor passes away. Alternatively, a separate irrevocable trust can be created, and assets can be moved from the existing revocable trust into the new one. Assets transferred to an irrevocable trust are treated as gifts to the trust beneficiary, potentially triggering gift-tax reporting requirements.¹⁴

Is a living trust usually revocable or irrevocable?

A living trust can be either revocable or irrevocable. The term “living” simply means the trust takes effect while the grantor is still alive. Making a living trust revocable or irrevocable establishes whether the grantor can continue to amend and access the trust throughout their lifetime.¹⁵

Can the grantor of an irrevocable trust be a beneficiary?

Yes, certain irrevocable trusts may permit the grantor to also be the trust beneficiary. These are often described as self-settled trusts and are sometimes used as a mechanism for protecting assets from certain creditors. However, these protections vary by state, and assets must remain in the trust, as is the case with other irrevocable trusts. ¹⁶

Can the trustee of a revocable trust also be a beneficiary?

Yes, the grantor of a revocable trust commonly serves as both its trustee and current beneficiary. This setup allows the grantor to maintain ownership and use of the assets held in the trust throughout the grantor’s lifetime. A successor trustee is typically added to the trust to take over once the grantor becomes incapacitated or dies.¹⁷