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Revocable Trusts and Irrevocable Trusts: Understanding the Difference

Last updated on: October 20, 2023

In the field of estate planning and managing assets, trusts are valuable tools for securing financial legacies and ensuring the smooth distribution of assets. There are two main types of trusts, revocable and irrevocable, which play a central role in this process, each offering specific advantages and considerations. By understanding the key differences between these trust structures, individuals can make well-informed decisions based on their particular financial goals, whether that involves maintaining control or optimizing tax planning.

Dealing with trusts can be complex and overwhelming, and this is where an experienced New Jersey trust attorney can provide invaluable assistance. Whether creating a revocable trust to retain control of assets during one’s lifetime or utilizing the benefits of an irrevocable trust to reduce tax obligations, at Matus Law Group, our team of New Jersey trust lawyers may be able to help you navigate these choices with confidence. By understanding individual circumstances, our team can create strategies that align with financial objectives, providing assurance that the envisioned legacy will be well protected and distributed according to one’s wishes. Contact us today at (732) 281 – 0060 to schedule a consultation.

Irrevocable Trust Basics

Once you create an irrevocable trust, you cannot go back and change it. Once assets are transferred into the trust, you forfeit your power to get them back. You cannot revoke (or go back on) your decision. You also cannot change the beneficiaries or the terms. 

So why would you want to create an irrevocable trust? Because what they lack in flexibility, they make up for in protection.

Revocable Trust Basics

After you create a revocable trust, you can change or even undo (revoke) it as you see fit. As the trustee, you are still considered the owner of the assets in a revocable trust. The flip side of the coin is that this also means your creditors can seize the assets in a revocable trust if you fail to pay a debt, and it also counts against you when you are trying to qualify for Medicaid.

Revocable trusts have more flexibility than irrevocable trusts but lack the protections.

Trust Type Characteristics Benefits Drawbacks
Irrevocable Trust Cannot be changed once created. Assets transferred cannot be retrieved. Offers asset protection. Lack of flexibility. Unable to change beneficiaries or terms.
Revocable Trust Can be changed or revoked after creation. Assets still owned by trustee. Provides flexibility. Avoids Medicaid qualification issues. Lacks certain protections. Can be subject to creditors seizing assets.

Which is Better, Revocable or Irrevocable Trust

When determining the optimal choice between a revocable trust and an irrevocable trust, it’s essential to understand the distinctions between these two types of estate planning tools and their implications for asset management and protection.

A revocable trust, often referred to as a living trust, is a legal arrangement that enables you to separate property ownership from control. This setup proves invaluable for streamlining asset transfer posthumously and managing assets in case of incapacity. As the grantor of a revocable trust, you create a trust document designating yourself as the trustee, in charge of asset management. It’s prudent to name a successor trustee to take over after your passing or if you become incapacitated. Beneficiaries are also designated to benefit from the trust.

Through this arrangement, the trust gains legal ownership of your property, yet you maintain control if you’ve appointed yourself as the trustee. After your passing or incapacity, the successor trustee assumes responsibility for managing assets and overseeing their distribution to beneficiaries as stipulated.

The revocable aspect of this trust allows you to adjust its terms or revoke it entirely as you see fit. This flexibility lends itself to ease of modification.

In contrast, an irrevocable trust is another legal mechanism that detaches ownership from control. However, it differs significantly from a revocable trust. When creating an irrevocable trust, a trustee other than yourself is generally named. Unlike a revocable trust, the terms of an irrevocable trust are far less malleable. Modifications or cancellations typically necessitate court approval and beneficiary consensus.

Critical disparities between these two trust types encompass the level of control relinquished and the protection each affords to assets.

How to Decide Which is Right for You

If you’re trying to choose between creating a revocable trust or an irrevocable trust, you’ll have to really consider your priorities, your goals, and your unique circumstances.

Do you feel it’s possible you could change your mind about your choice of beneficiaries? Do you want to be able to liquidate your assets in case of emergencies? If so, a revocable trust is probably a better fit.

Do you want to protect your assets from substantial debts that you might not be able to repay? Are you certain about who you want to pass your assets down to after you’re gone? Are you looking for ways to spend down your assets to qualify for Medicaid when you get older? In these cases, you’d likely lean towards an irrevocable trust.

Many people may answer yes to questions in both of these categories. If that’s you, or you have other concerns or questions, the Matus Law Group team is here for you. We can help you look at your options to create an estate plan that’s perfectly suited to your unique circumstances. Contact us today by calling (732) 281-0060.

Christine Matus

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Christine Matus
Christine Matus

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