The Difference Between Revocable and Irrevocable Trusts

The Difference Between Revocable and Irrevocable Trusts

Trusts are powerful estate planning tools that allow individuals to manage and distribute their assets efficiently while ensuring their wishes are carried out after their death. There are two general categories of trusts,  revocable and irrevocable, each of which serves a different purpose and offers unique advantages and limitations.

Any New Yorker considering how to best match their estate plan to their individual circumstances should understand the key differences between revocable and irrevocable trusts. At Ely J. Rosenzveig & Associates, we have extensive experience in guiding clients through the important process of choosing the best estate planning strategies. If you have questions about how you can best preserve and protect your assets for  the people and/or  charities that are dear to you, contact Ely J. Rosenzveig & Associates today.

Revocable Trust

What is a Revocable Trust?

A revocable trust, often referred to as a living trust, is a trust that the grantor (the person creating the trust) can change, modify, or revoke at any time during their lifetime. In a revocable trust, the grantor maintains control and ownership of the assets placed into the trust. The grantor can act as both the trustee (the person responsible for managing the trust) and the beneficiary (the person who benefits from the trust).

A revocable trust becomes irrevocable when the grantor of the trust dies. Since a revocable trust usually names the grantor as both the trustee and the first beneficiary, their death makes any trust modification impossible.

Advantages of a Revocable Trust in New York

Flexibility – The grantor can make changes to the trust, including adding or removing assets. They can change beneficiaries and alter the terms under which a beneficiary may receive distributions as circumstances and relationships change.

Avoid Probate – Assets held in a revocable trust generally avoid probate. Generally, non-trust assets in a decedent’s name at the time of their death held outside of banks and brokerage accounts that have explicit payable or transfer on death provisions, must pass to heirs and transferees through the probate court.

In New York, where there is a Will, the probate process involves the Surrogate’s Court examining if the Will is valid and ensuring that the executor complies with the law and the terms of the Will. If no Will is left by the decedent, then the court will order the assets to be distributed according to New York’s intestate succession laws. In either of these cases, the process involves substantial  delays and legal expenses.  

Probate-related expenses and delays are avoided if assets are held in a revocable trust.

Privacy – Revocable trusts are not part of the public record as probate court proceedings are. Trusts provide a level of privacy that a Will does not offer.

Incapacity Planning – If the grantor becomes incapacitated, a successor trustee (a person named by the grantor within the terms of the trust document) can step in to manage trust assets without the need for court intervention.

Limitations of a Revocable Trust in New York

No Asset Protection – Assets in a revocable trust are usually not protected from creditors or legal claims. Because a revocable trust grantor retains control over the trust assets, the assets are still deemed to be available if the grantor is sued or faces financial difficulties.

Tax Liability – Income earned from assets in a revocable trust are considered taxable income for the grantor, again, because they have not truly yielded control of the trust assets. For federal estate tax purposes, the assets in a revocable trust are still considered part of the grantor’s estate. This means they may be subject to estate taxes if the grantor’s estate exceeds the applicable threshold.

Cost – Establishing and maintaining a revocable trust can be more expensive than a simple will.

Irrevocable Trusts

The Difference Between Revocable and Irrevocable Trusts
Assets in a revocable trust are usually not protected from creditors or legal claims. Because a revocable trust grantor retains control over the trust assets, the assets are still deemed to be available if the grantor is sued or faces financial difficulties.

What is an Irrevocable Trust?

An irrevocable trust is a trust that cannot be unilaterally modified, amended, or revoked by the grantor once it is established, except in rare circumstances and only with the consent of the beneficiaries. In an irrevocable trust, the grantor must transfer ownership and control of assets to the trust itself or a designated trustee. The grantor typically cannot serve as the trustee.

Advantages of an Irrevocable Trust in New York

Asset Protection – Assets placed in an irrevocable trust are provided with protection from creditors and legal claims, unlike revocable trusts.

Tax Benefits – Irrevocable trusts can be structured to reduce estate taxes, particularly for individuals with significant assets. Irrevocable trusts can also offer income tax benefits.

Medicaid Planning – Irrevocable trusts can be used as part of Medicaid planning strategies to protect assets while still qualifying for Medicaid benefits for long-term care. For other Medicaid eligibility strategies that may be available, depending on your individual circumstances, ask the attorneys at Ely J. Rosenzveig & Associates.

Controlled Gifting – Irrevocable trusts can be structured to control gifting of assets to beneficiaries over time, reducing the grantor’s taxable estate.

Limitations of an Irrevocable Trust in New York

Loss of Control – Once the grantor places assets in an irrevocable trust, they surrender control over them. It is usually impossible to change or revoke the trust without the consent of beneficiaries.

Complexity – Irrevocable trusts can be more complex to establish and administer compared to revocable trusts, and they may require ongoing maintenance.

Tax Implications – While irrevocable trusts can offer tax benefits, they are also required to file separate tax returns. They may be entitled to deductions for distributions made to beneficiaries who may then incur tax obligations.

Medicaid Look-Back Period – Medicaid has a five-year “look-back” period during which any assets transferred into an irrevocable trust will still count for Medicaid eligibility purposes. Planning in advance is crucial when considering Medicaid implications of an irrevocable trust.

Choosing Between Revocable and Irrevocable Trusts in New York

Determining which type of trust is right for you depends on your individual goals and circumstances. Consulting with an attorney who has extensive experience relating to trusts and estates will provide you with the information and guidance that you need to make the best decision for you and your family.

Some of the factors to consider include the following:

  • Flexibility v. Control: Revocable trusts provide the grantor with flexibility and control over the trust assets, while an irrevocable trust gives the grantor more asset protection and minimizes taxes.
  • Estate Taxes: If an individual has a large estate, irrevocable trusts can help to reduce estate taxes by keeping the size of the estate beneath the estate tax exemption threshold ($13.61 million-2024).
  • Medicaid Planning: If you are concerned about remaining eligible for Medicaid benefits to help with the costs of long-term care, an irrevocable trust could be an important part of your overall estate plan.

Ely J. Rosenzveig & Associates Can Answer All Your Questions

Estate planning and elder law are at the center of Ely J. Rosenzveig & Associates’ legal practice. For a generation, we have been helping individuals and families preserve and protect their assets by establishing customized estate plans that fit each client’s financial and family circumstances. Whether your estate is modest or substantial, Ely J. Rosenzveig & Associates will help you achieve your goals.

Call Ely J. Rosenzveig & Associates for Your Estate Plan
Call 1.914.816.2900 or email us at: [email protected]

Ariel S. Rosenzveig
Ariel Rosenzveig

Ariel S. Rosenzveig received his Juris Doctor from the Benjamin N. Cardozo School of Law in May, 2011, and has been practicing law with the firm since August, 2011. During his summers while in law school, Ariel interned with the United States Commodity Futures Trading Commission in New York and with the Securities & Futures Commission in Hong Kong, China.

While in law school, Ariel served on the staff of the Cardozo Public Law, Policy & Ethics Journal, volunteered with the Cardozo Advocates for Battered Women, and participated in the National Institute for Trial Advocacy’s Intensive Trial Advocacy Program. Prior to attending law school, Ariel worked as an arbitrage trader for a small proprietary trading firm on Wall Street. Ariel graduated summa cum laude from Yeshiva University in 2006.

Ariel is licensed to practice law in the states of New York and New Jersey, and is a member of the New York State Bar Association (NYSBA), NYSBA’s Elder Law section, and the National Academy of Elder Law Attorneys (NAELA). In June, 2015, Ariel successfully completed a certificate program in mediation through the Program on Negotiation at Harvard Law School.

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