Revocable Trusts vs. Irrevocable Trusts: What’s the Difference and Which One Do You Actually Need?

First, What Exactly Is a Trust?

A trust is a legal entity created by an agreement under which three distinct roles are established:

The Grantor (also called Settlor or Creator): You, as the person creating the trust, dictate the terms and decide what assets to transfer into it.

The Trustee: An individual or institution you select to hold and manage the trust property according to the terms you’ve established. Note that under New York law, both individuals and institutions, such as banks or trust companies, can serve as trustees, provided they meet certain legal requirements.

The Beneficiaries: The people or organizations you name to benefit from the trust, which could include yourself, family members, charities, or anyone else you wish to provide for.

The Flexible Option: Revocable Trusts

A revocable trust (also called a revocable living trust) offers more flexibility during your lifetime. As the grantor of a revocable trust, you retain complete ownership and control of the assets. You can modify the trust terms, add or remove assets, change beneficiaries, or revoke the trust entirely at any time, for any reason.

When you create your revocable trust, you typically name yourself as both the trustee and primary beneficiary, then transfer the title of your assets (stocks, brokerage/investment accounts, real estate, etc.) from your individual name to the name of your trust. This gives you total and complete control of all your assets – you can buy, sell, trade, and do whatever you want, just like you do now.

A revocable trust also designates a successor trustee who would assume management responsibilities if you become incapacitated or upon your death. This seamless transition of control is one of the primary benefits of a revocable trust.

Revocable trusts are particularly well-suited for individuals who:

• Don’t face federal estate tax concerns
• Don’t need Medicaid planning
• Aren’t concerned about creditor protection
• Want to streamline estate administration and plan for potential incapacity

The Protection Plan: Irrevocable Trusts

In contrast, once you establish an irrevocable trust, you generally cannot cancel or revoke it without the consent of all beneficiaries. As the grantor, you transfer assets into the trust and relinquish control over them. This is what gives irrevocable trusts their protective power. A designated trustee then manages the trust assets and carries out the instructions spelled out in the trust document.

One key advantage of irrevocable trusts is that once you transfer assets to an irrevocable trust and genuinely lose control over them, those assets are generally protected from your future creditors and lawsuits. Revocable trusts offer no such asset protection because you retain complete ownership and control over the assets and can revoke the trust at any time. Thus, assets in a revocable trust remain vulnerable to lawsuits, creditor claims, and other financial liabilities.

Can an Irrevocable Trust Be Changed?

You may worry that you will not be able to make any adjustments to an irrevocable trust if your wishes change over time. In fact, New York law does offer some options for trust modification:

• Consent of All Parties: Under EPTL § 7-1.9, an irrevocable trust may be modified with the consent of the grantor (if living) and all beneficiaries.
• Judicial Modification: New York courts have the authority to modify or terminate irrevocable trusts under certain circumstances.
• Decanting: If permitted, a trustee with discretionary authority may transfer trust assets to a new irrevocable trust with different terms, effectively updating the trust without requiring beneficiary consent or court approval, subject to certain limitations.

Medicaid Asset Protection Trusts: Planning for Long-Term Care in New York

One of the most common and valuable applications of irrevocable trusts in New York is long-term care planning through Medicaid Asset Protection Trusts (MAPTs).

With nursing home costs in New York ranging from approximately $150,00 to $200,000+ annually depending on the location and facility, many families face the prospect of depleting their life savings to pay for long-term care. Home health care can be even more expensive. Medicaid will cover nursing home and other long-term care costs, but only after you’ve spent down your countable assets to very modest levels (generally $32,396 for individuals in 2025).

A properly structured MAPT allows New York residents to protect assets from nursing home costs while potentially qualifying for Medicaid coverage:

• You transfer assets (typically your home, investment accounts, or other property) into an irrevocable trust
• You must name an independent trustee – you cannot serve as trustee yourself
• You can retain the right to receive income generated by trust assets (such as rental income or investment dividends)
• The trustee can access trust principal for the benefit of your children or other beneficiaries, but cannot distribute principal directly to you
• You can maintain the right to change the ultimate beneficiaries

Under federal and New York Medicaid law, transfers to a MAPT are subject to a five-year look-back period for nursing home Medicaid. Because of the five-year rule, MAPTs are most effective when established well before long-term care is needed. Many New Yorkers create these trusts in their 60s or early 70s as part of comprehensive estate and long-term care planning.

Once five years have passed since funding the trust, the assets are generally protected and will not count toward Medicaid’s resource limits. You can potentially qualify for Medicaid to cover nursing home costs while preserving your home and other assets for your children or other beneficiaries.

MAPTs must be carefully drafted to comply with Medicaid regulations while meeting your estate planning goals. Minor drafting errors can result in the trust assets being counted for Medicaid eligibility or can create other unintended consequences.

What Is the Difference Between Revocable and Irrevocable Trusts with Regard to Taxes?

The tax treatment of these two trust types differs substantially, although both types offer key tax advantages.

Because an irrevocable trust is treated as a separate legal entity distinct from the grantor, it must obtain its own Employer Identification Number (EIN) and file annual income tax returns. Irrevocable trusts can also incur additional costs if a certified public accountant (CPA) is necessary for tax preparation. Because it is a trust and not an individual, the irrevocable trust can’t always qualify for the various deductions and exemptions that individuals can claim on their returns. Also, higher tax rates may apply at lower income levels for irrevocable trusts than for individuals.

Assets held in a revocable trust remain part of the grantor’s estate for tax purposes. The trust uses the grantor’s Social Security number, and all income generated by trust assets is reported on the grantor’s personal tax return (Form 1040). Any income you earn from this type of trust is filed along with your other income.

However, because the assets remain in your taxable estate, they will be subject to federal estate tax (if your estate exceeds the federal exemption, currently $15 million for 2026) and New York estate tax (which has a threshold of $7.35 million for deaths in 2026, with the exemption amount adjusting annually). For wealthy individuals whose estates may exceed these thresholds, transferring assets to an irrevocable trust removes them from the taxable estate, potentially saving hundreds of thousands.

What do Revocable Trusts and Irrevocable Trusts Have in Common?

Both revocable and irrevocable trusts are “living trusts” because you establish them during your lifetime. They share several important advantages:

Avoiding Probate

Assets held in a living trust pass to beneficiaries without going through the probate process (called “estate administration” in New York), saving time, costs, and maintaining privacy. Probate in New York takes at least 7 months to over a year or two and involves court fees, legal expenses, and public disclosure of your assets. Living trusts are private documents, keeping your estate planning wishes completely confidential.

Incapacity Planning

If you become unable to manage your finances due to illness, injury, or cognitive decline, your successor trustee can immediately step in to manage trust assets without the need for a court-appointed guardian. This substantially reduces the risk that a guardianship proceeding will become necessary, saving associated fees and preserving continuity in asset management.

Protection from Challenges

Living trusts can ensure that your wishes are carried out and are not easily subject to attack. Because living trusts are difficult to challenge, disgruntled heirs will have a much harder time contesting your estate plan.

Making the Right Choice

Choosing between a revocable and irrevocable trust, or determining the best combination of estate planning tools, requires careful analysis of your unique situation.

You may be trying to navigate specific considerations, such as planning for estate taxes or protection from creditors. Perhaps you are looking to qualify for Medicaid or provide for the future well-being of a loved one who has a disability.

The most effective way to begin the preparation of an effective estate plan is to meet with a qualified professional who understands your specific circumstances.

Take the Next Step – Work with an Estate Planning Attorney Today

The information in this article provides general guidance on revocable and irrevocable trusts under New York law. Estate planning laws vary by state, so specific situations may be treated differently outside New York.

The experienced estate planning attorneys at Pierro, Connor & Strauss can help you navigate these considerations and design a customized plan that protects your assets, minimizes taxes, qualifies you for benefits when appropriate, and ensures your wishes are honored. Our team has extensive experience helping New York families navigate complex estate planning decisions with tools tailored to your particular circumstances.

Don’t wait until a health crisis or emergency forces hasty decisions. Proper estate planning requires time and thoughtful consideration.