Revocable vs. Irrevocable Trusts

Written by Kirstin Hawthorne & edited by Stephanie Faris, Attorney

A revocable trust is like a storage box you keep in your basement. You can add things to it, take things out, or change the instructions whenever you want. It’s under your control the entire time. As long as you’re alive, you manage the trust, and when you pass away, the items inside are transferred according to your wishes, without going through probate (the court process that can delay distributions to your loved ones). The catch? Since you still control everything, creditors can still come after the assets if you owe them money, and the value of the assets is still counted toward your estate for tax purposes.

On the other hand, an irrevocable trust is like a locked box you keep in a vault. Once you put something inside, you can’t take it out or change anything about it. It’s no longer in your control, but that’s where the benefits kick in. Since you no longer "own" the assets in an irrevocable trust, they’re generally protected from creditors and won’t be counted toward your estate for tax purposes. The trade-off is that it’s much less flexible. If you want to make changes or take things out, it’s a complicated process that may require consent from the beneficiaries. In North Carolina, irrevocable asset protection trusts are only used for Medicaid planning when long-term care is needed. For tax planning purposes, other strategies are generally more effective in our state.

So, when deciding which trust is right for you, think about how much control you’re willing to give up. Do you need flexibility, or are you looking for asset protection from Medicaid? Both types of trusts have their place, and understanding the key differences can help you make the right choice for your situation. Understanding the key differences can help you make the right choice for your situation.

The information in this blog is for informational purposes only, does not constitute legal advice, and does not create a client-attorney relationship.