Revocable vs. Irrevocable Trusts — What’s the Difference, and Which Is Right for You?

You know you want to protect your assets and make sure your loved ones get as much as possible, but exactly how to go about that is another story. It can be hard to know the best path to take (not to mention find your way through all the jargon!), but we’re here to make it easier.

One of the most common ways people protect their estates is through a trust, a legal setup in which your assets are held on behalf of your beneficiaries. There are two main types of trusts that people work with, revocable trusts (also called revocable living trusts, or RLTs) and irrevocable trusts.

The main difference between a revocable and an irrevocable trust is how easy it is to make changes to the trust.

As the name suggests, a revocable trust is one that can be revoked — meaning that you can make changes to it pretty easily. If you need to add or remove beneficiaries, or make changes in the number or type of assets you want to be held in the trust, you can do that as long as you remain mentally competent.

An irrevocable trust is set in stone though. While it’s possible to make changes to it, you cannot be the person making those changes.

Pros and cons of revocable and irrevocable trusts

Revocable trusts are great for flexibility, and people generally choose them when they want to remain in control of their own assets. They do become irrevocable once you die, and your loved ones won’t need to go through the probate process. (Assuming the trust is set up correctly and all your assets are assigned to it properly.)

However, you don’t get any tax protections with a revocable trust, and creditors can come after assets held in this type of trust. That means that once you die, those assets will be used to pay your bills, and your beneficiaries will only get what’s left over.

Irrevocable trusts are for those who are ready to give assets away during their lifetime. Once your assets are in the irrevocable trust, they’re no longer under your control, and it’s difficult to make changes to the terms of the trust. But, the trust assets will not be subject to probate at your death, and any future increase in value of the trust assets are not counted as part of your estate at your death. Gifting of assets to irrevocable trusts during one’s lifetime can be very valuable for those with estates that are valued over the federal tax exemption. (The exemption changes year to year, but in 2023 it’s $12.92 million for individuals and $25.84 million for married couples.) What’s more, assets in an irrevocable trust aren’t available to creditors, so you can rest easy knowing that your beneficiaries will benefit from the assets as you intended.

How to choose the right type of trust for you

Most people need a revocable trust.

Your revocable trust may include directions to create irrevocable trusts after your death to hold assets for your beneficiaries. Here is a discussion on whether your beneficiaries will receive assets in a custodial account or in an irrevocable trust for their benefit.

Only certain individuals in unique situations will need to create an irrevocable trust now. Those individuals include those who own assets with total value approaching or over the estate tax exemption, or if they own an asset that will substantially increase in value and they want to gift it to others now while the value is lower.

Whatever your situation, we’re here to help. We’d love to help you create your lasting voice with a Duet trust. Check out our Beta page to see if a Duet trust is right for you!