Trusts, whether revocable or irrevocable, are powerful estate planning tools that offer significant benefits and are essential components of many people’s estate plans. Each offer unique advantages and disadvantages so it is important to understand the differences between revocable and irrevocable trusts to discover what best suits your personal goals and needs.
SIMILARITIES
Manages your assets
A trust, whether revocable or irrevocable, allows you (the grantor/settlor) to hold assets or properties for the benefit of another party (the beneficiary) and eases the transfer process. A trust is managed by a trustee. Who has the ability to be a trustee is what separates a revocable and irrevocable trust. Regardless of who the trustee is, their job is essential to the function and success of the trust as they manage the property, file tax returns pay out income from the trust to the beneficiaries, distribute property to beneficiaries after the death of the grantor, and other responsibilities to maintain the trust. It is best to select someone who has the proper training and qualifications to ensure that your assets are protected and wishes are fulfilled.
When putting together a trust, if you name two or more people to act together as trustees, they are called “co-trustees”; however, it is recommended to only appoint individual trustees. Read more about the common problems of co-trustees here. You should also include successor trustees in your estate plan to ensure that your trust is accounted for in the case that your chosen trustee cannot perform their duties.
Not part of Probate
Both irrevocable and revocable trusts avoid the probate process. This keeps your assets out of public record and streamlines the transfer process by allowing you to skip the complicated probate procedure.
Still require other documents
A trust alone is not enough to have a comprehensive estate plan. Even if you have a trust, you will also need a pour-over will as a catch-all tool to cover all of your assets. Additionally, if you have minor children, a will is the only document to appoint guardians for your children in the case of your death. You should also have a Health Care Power of Attorney and Durable (Financial) Power of Attorney to ensure that your health and assets are protected if you cannot make decisions for yourself. A HIPAA Authorization document and living will are also important components of your estate plan to have advance directives in place in the case of your incapacity.
DIFFERENCES
Trustees
Revocable: In a revocable trust, the grantor/settler (the creator of the trust and whose assets are included in it) can also be the trustee. The trustee is the person responsible for managing the property and assets within the trust. So, to ensure that your wishes are followed, grantors of a revocable trust typically name themselves as trustee to manage their own assets.
Irrevocable: In an irrevocable trust, the grantor/settler cannot be named as a trustee. Therefore, the grantor needs to select a trustee that the persons trusts to ensure that their assets are properly managed and protected during their lifetime. The grantor’s lack of ability to be the trustee of an irrevocable trust is what separates it from a revocable trust and is the reason for its many tax benefits.
Tax Implications
Revocable: Assets in a revocable estate are still considered part of your taxable estate and are subject to estate and gift taxes. If you have a large net worth or are a high earner, it is essential to understand the tax implications that come with significant assets. Read more about estate planning essentials and mistakes to avoid for high net worth families.
The 2025 estate and gift tax exemption rate is $13.99 million. So, for many families, the tax implications of their trust may not be their biggest priority. Meanwhile, for other families it may be their number one priority.
Irrevocable: Assets put into an irrevocable trust are no longer part of your taxable estate because you are no longer the owner of the assets, the trust is the owner instead. Therefore, an irrevocable trust offers unique tax benefits compared to a revocable trust and allows you to minimize your estate taxes. The estate and gift tax rate is 40%, which is applied to all assets over the $13.99 million exemption rate.
Protection from Creditors
Revocable: A revocable trust does not offer protection from creditors because while the asset is in the trust, you are still considered the owner and have control over it. If you have worries about lawsuits, judgments, or creditors, then it is important to understand that a revocable trust does not shield you from these legal claims.
Irrevocable: An irrevocable trust offers protection from creditors. Similar to the reason for the trust’s tax implications, the owner of the assets in an irrevocable trust is not you; it is the trust. Therefore, lawsuits, judgements, or creditors cannot come after you for these assets because you are not the owner.
Level of Flexibility
Revocable: A revocable trust allows flexibility. You, the grantor, can add assets or take assets out and even change the beneficiaries during your lifetime. As the grantor of a revocable trust, you can change the trustees or beneficiaries, alter the distribution or allocation of assets, and take out or add assets to the trust. Amendments to a revocable trust allow for small changes while a restatement may be necessary for more major changes.
Irrevocable: Once established, an irrevocable trust is defined by its lack of control and flexibility for both the grantor and the beneficiaries. Once an asset is put into an irrevocable trust, it generally cannot be taken out by the grantor, trustee, or beneficiaries. The irrevocable trust’s ability to shield you from lawsuits and creditors and its unique tax implications also come with a lack of flexibility and control.
Hiring a Wisconsin Trust Attorney
If you are considering a trust as part of your estate plan, it is essential to hire an experienced Wisconsin trust attorney to understand the advantages and disadvantages that come with different kinds of trusts, specifically revocable and irrevocable trusts. From tax implications to the level of flexibility and control, revocable and irrevocable trusts have many differences. An attorney at Konstantakis Law Office can help tailor your estate plan to your specific needs and goals. Contact us today.
