Revocable and irrevocable living trusts each have numerous
advantages and disadvantages, so it is important to be familiar with them
before deciding which tool is the best option for you to use in your estate
There are some key differences between the two types of
trusts to help you make your decision:
to the grantor (the person who established the trust). Instead, the trust
itself takes ownership of those assets.
This does not mean you are no longer allowed to use the
assets in the trust—you simply no longer own them.
The assets in the trust are completely shielded from creditors, as they are no
longer in your ownership. In a revocable trust, you still legally own the trust
items and can add or remove items from the trust at any time, but those items
do not receive protection from creditor claims.
Once established, irrevocable trusts cannot be changed in
any way, even if you have a court order. Revocable trusts provide much more
flexibility, allowing the trust to be modified at your leisure.
Protection against estate taxes
Irrevocable trusts allow all trust assets to escape estate
taxes, as you no longer technically own the property. It is not included in
calculations of the value of your estate upon your death. With a revocable
trust, the value of any property in the trust is still included in the
valuation of your estate and taxable property, as you are still the owner of
In an irrevocable trust, you name a separate person to act
as your trustee. This person has what is referred to as a “fiduciary
duty” to protect trust assets, and
should be someone from outside the family to ensure the trustee operates
independently and without grantor influence.
The trustee then manages all the assets included in the
trust and must abide by the trust’s provisions. With a revocable
trust, the grantor acts as the trustee and maintains control over all trust
Irrevocable trusts have their own tax identification number.
The trustee files a 1041 on behalf of the trust, then pays the tax itself or
issues a K-1 form to the grantor (or beneficiaries) for any income that the
trust generates. There is no separate tax ID number for a revocable trust.
Instead, the taxpayer files everything on a personal 1040, as he or she still
owns all trust assets.
These are just a few of the primary differences between
revocable and irrevocable living trusts. Again, the type of trust that’s
best for you ultimately depends on the circumstances of your estate—neither
is an inherently better tool than the other.
For more information and guidance on establishing a
revocable or irrevocable trust, contact an experienced New York estate planning lawyer at Lissner & Lissner