Difference between revocable and irrevocable trusts

Short answer: (BIG CAVEAT: IF you do it right)

Revocable Trust: Best for most people who want flexibility, probate avoidance, and control during their lifetime.
Irrevocable Trust: Better for asset protection, tax planning, or Medicaid eligibility.

Feature	Revocable Trust	Irrevocable Trust
Modifiability	Can be changed or revoked	Generally cannot be changed
Control	Grantor retains control	Grantor gives up control
Probate Avoidance	Yes	Yes
Asset Protection	No (assets remain in grantor’s estate)	Yes (but not 100%)
Tax Benefits	No estate tax reduction	Potential estate tax savings
Medicaid Protection	No	Yes (if properly structured)

Long Answer:

Revocable Trust (Living Trust)

• Definition: A trust that can be altered, amended, or revoked by the grantor (creator) during their lifetime. It becomes irrevocable when creator passes away.
• Key Features:
  • The grantor retains control over the assets.
  • Can be changed or dissolved at any time.
  • Avoids probate (court process for distributing assets after death).
  • Does not provide asset protection from creditors.
  • The grantor’s Social Security Number (SSN) is used for tax purposes—income is taxed to the grantor.
• Good For:
  • Avoiding probate (assets pass directly to beneficiaries).
  • Privacy (unlike a will, a trust is not public record).
  • Planning for incapacity (a successor trustee can manage assets if the grantor becomes unable to do so).
  • Flexibility (allows changes as circumstances evolve).

Irrevocable Trust

• Definition: A trust that generally cannot be modified or revoked once established without the beneficiaries’ consent.
• Key Features:
  • The grantor gives up control of the assets (they are no longer considered personal property).
  • Provides stronger asset protection from creditors and lawsuits.
  • May reduce estate taxes (assets are removed from the grantor’s taxable estate).
  • Requires its own Tax ID Number (EIN); income is taxed to the trust or beneficiaries.
• Good For:
  • Asset protection (shielding wealth from lawsuits, creditors, or Medicaid claims).
  • Estate tax reduction (for high-net-worth individuals).
  • Medicaid planning (protecting assets to qualify for long-term care benefits).
  • Special needs planning (providing for a disabled beneficiary without affecting government benefits).