Christy Bieber has a JD from UCLA School of Law and began her career as a college instructor and textbook author. She has been writing full time for over a decade with a focus on making financial and legal topics understandable and fun. Her work has.
Christy Bieber, J.D. ContributorChristy Bieber has a JD from UCLA School of Law and began her career as a college instructor and textbook author. She has been writing full time for over a decade with a focus on making financial and legal topics understandable and fun. Her work has.
Written By Christy Bieber, J.D. ContributorChristy Bieber has a JD from UCLA School of Law and began her career as a college instructor and textbook author. She has been writing full time for over a decade with a focus on making financial and legal topics understandable and fun. Her work has.
Christy Bieber, J.D. ContributorChristy Bieber has a JD from UCLA School of Law and began her career as a college instructor and textbook author. She has been writing full time for over a decade with a focus on making financial and legal topics understandable and fun. Her work has.
ContributorAdam has resided at the intersection of legal and journalism for two decades. An award-winning journalist and legal strategist, he’s covered high-profile trials in Florida. After law school, Adam and spent two years clerking for a U.S. District Co.
Adam has resided at the intersection of legal and journalism for two decades. An award-winning journalist and legal strategist, he’s covered high-profile trials in Florida. After law school, Adam and spent two years clerking for a U.S. District Co.
Adam has resided at the intersection of legal and journalism for two decades. An award-winning journalist and legal strategist, he’s covered high-profile trials in Florida. After law school, Adam and spent two years clerking for a U.S. District Co.
Adam has resided at the intersection of legal and journalism for two decades. An award-winning journalist and legal strategist, he’s covered high-profile trials in Florida. After law school, Adam and spent two years clerking for a U.S. District Co.
Updated: Apr 22, 2024, 8:44am
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Trusts are an important tool for estate planning. They broadly fall into two categories: revocable and irrevocable trusts.
But what is the difference between an irrevocable trust and a revocable trust and which is right for you? This guide helps you make an informed choice.
A revocable trust is also called a living trust. It is a legal document you create that allows you to separate the ownership of your property from the control of your property. This is helpful to facilitate the transfer of assets after your death and to ensure your assets can be managed in case you become incapacitated.
When you create a revocable trust, you are called the grantor. You create a trust document which specifies who will serve as the trustee that’s in charge of managing trust assets. You can name yourself as the trustee, but should also select a successor trustee who takes charge after your death or in case of your incapacity. You’ll also name beneficiaries who benefit from the trust.
You then transfer legal ownership of your property into the trust and the trust becomes the legal owner. The trustee manages the trust property, which means you’ll retain control if you named yourself as the trustee. The successor trustee will begin managing trust assets when you can’t and will facilitate the transfer of trust assets to beneficiaries after your death in accordance with your wishes.
Revocable trusts, as the name suggests, can be revoked. You can change the terms of the trust or cancel it whenever you want.
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An irrevocable trust is also a legal document that you create that separates ownership from control. But it is very different from a revocable trust.
When you create an irrevocable trust, you generally name someone else as trustee besides yourself. You cannot change anything about the trust except in very limited circumstances. If you want to cancel or modify the trust, you usually need court permission and approval of all beneficiaries.
Both a revocable and irrevocable trust can help you to facilitate a transfer of assets outside of probate. However, there are some major differences between a revocable trust and an irrevocable trust, which you must be aware of when deciding how to set up a trust and which type of estate planning tool is right for you.
These differences have to do with the level of control you must give up, as well as the level of protection each trust provides for your assets.
When you create a revocable trust, you still essentially retain complete control over your assets held within the trust. You can modify or change the trust terms whenever you want. You can use or sell the assets as you wish.
This is not the case with an irrevocable trust. Changing any of the terms of the trust is almost impossible so you are giving up a lot of control over your assets if you choose to use this estate planning tool. And since you are not the trustee, you cannot personally manage the assets in the trust.
With an irrevocable trust, you get much more protection for assets. Since you have largely given up control over the trust assets and cannot just access them at will, there is more protection from creditors. You may also be able to protect irrevocable trust assets from estate tax.
And if you follow the correct processes (such as creating a trust well in advance), the assets held within your trust may not count when determining if you are eligible to have Medicaid pay for nursing home care for you.
With a revocable trust, the fact you retain control over assets means you can lose them to creditors and the trust assets can prevent you from qualifying for Medicaid nursing home coverage, which is available only to people with limited resources.
And while your revocable trust assets pass outside of probate, they are generally still considered part of your taxable estate and as a result, it is possible estate tax will have to be paid on them.
Here are some examples highlighting the difference between revocable and irrevocable trusts:
A revocable trust has some pros and cons to consider.
The biggest benefits of a revocable trust include the following:
The biggest downsides of a revocable trust include the following:
Ultimately, you should consider whether your primary goal is to protect your assets or to retain the flexibility to manage them as you see fit.
There are also both advantages and disadvantages of an irrevocable trust.
Some big advantages of an irrevocable trust include the following:
Some downsides of an irrevocable trust include the following:
Work with an experienced estate planning lawyer to determine whether a revocable trust vs. an irrevocable trust is best for your situation.
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