Revocable vs. Irrevocable Trusts: What You Need to Know Before Choosing the Right Option
When planning your estate in New York, one of the most critical decisions you’ll face is choosing between a revocable trust and an irrevocable trust. Both serve as valuable tools for managing and distributing assets, but they differ significantly in their structure, flexibility, tax implications, and legal protections.
Understanding these differences is essential to selecting the option that aligns with your financial goals, family needs, and long-term plans. Our team at Goldstein Mauer PLLC, can help explain the nuances of revocable and irrevocable trusts, with a focus on their application in New York, to help you make an informed decision.
What Is a Trust?
A trust is a legal arrangement where one party, known as the grantor, transfers assets to a trustee, who manages those assets for the benefit of designated beneficiaries. Trusts can be used for various purposes, including estate planning, asset protection, tax minimization, and making sure smooth wealth transfer.
In New York, trusts are governed by the New York Estates, Powers and Trusts Law (EPTL), which outlines the rules for creating, administering, and terminating trusts.
Trusts fall into two broad categories: revocable and irrevocable. A revocable trust, often called a living trust, allows the grantor to retain control over the assets and make changes during their lifetime.
Once established, an irrevocable trust generally can’t be altered or revoked, offering benefits like asset protection and tax advantages. Below, we’ll explore the specifics of each type, their benefits, drawbacks, and considerations specific to New York.
Revocable Trusts: Flexibility and Control
Revocable trusts are versatile estate planning tools that allow individuals to maintain control over their assets while preparing for efficient distribution after their passing.
Overview
A revocable trust is a trust that the grantor can modify, amend, or terminate at any time during their lifetime, as long as they remain mentally competent. The grantor typically serves as the trustee and beneficiary during their lifetime, maintaining full control over the trust’s assets.
Upon the grantor’s death, the trust becomes irrevocable, and the assets are distributed to the named beneficiaries according to the trust’s terms.
Key Features
A revocable trust offers significant flexibility and control, making it a popular estate planning tool in New York.
Flexibility: The grantor can change the trust’s terms, add or remove assets, or dissolve the trust entirely.
Control: The grantor retains access to and management of the trust’s assets, making it ideal for those who want to maintain authority over their wealth.
Probate avoidance: Assets in a revocable trust bypass New York’s probate process, which can be time-consuming and costly due to the state’s complicated Surrogate’s Court procedures.
Privacy: Unlike a will, which becomes a public record during probate, a revocable trust remains private, shielding your estate plan from public scrutiny.
These features make revocable trusts an attractive option for individuals seeking to maintain control while planning their estate efficiently.
Benefits
Revocable trusts provide several advantages that streamline estate planning and asset distribution in New York.
Avoiding probate: In New York, probate can take months or even years, especially in New York City County or Nassau County, where Surrogate’s Courts are busy. A revocable trust assures assets are distributed quickly and privately to beneficiaries.
Ease of management: If the grantor becomes incapacitated, a successor trustee (named in the trust) can step in to manage the assets without court intervention, unlike a power of attorney, which may require additional legal steps.
Adaptability: Life circumstances change, and a revocable trust allows you to adjust your estate plan as needed, whether adding new beneficiaries, modifying distributions, or updating asset allocations.
By leveraging these benefits, a revocable trust can simplify estate management and provide peace of mind for grantors and their families.
Drawbacks
Despite their advantages, revocable trusts come with limitations that must be carefully considered in New York’s legal and financial setting.
No asset protection: Assets in a revocable trust are considered part of the grantor’s estate and aren't shielded from creditors, lawsuits, or Medicaid spend-down requirements. In New York, where Medicaid eligibility rules are stringent, this can be a significant consideration for long-term care planning.
Tax implications: Since the grantor retains control, the trust’s income is taxed as part of their personal income, and assets are included in their taxable estate for federal and New York estate tax purposes.
Cost and involvement: Setting up a revocable trust involves legal fees, and transferring assets (e.g., real estate) into the trust requires additional steps, such as updating property deeds. In New York, these costs can be higher due to the state’s legal and real estate challenges.
Understanding these drawbacks is essential for determining whether a revocable trust aligns with your financial and estate planning goals.
New York-Specific Considerations
In New York, revocable trusts are popular for avoiding probate, particularly for high-net-worth individuals with properties in multiple jurisdictions.
For example, if you own a vacation home in the Hamptons and a primary residence in Manhattan, a revocable trust can streamline asset distribution across counties or states, avoiding ancillary probate.
However, New York imposes a state estate tax on estates exceeding $7,160,000 (as of 2025), and revocable trusts don't reduce this tax liability since assets remain in the grantor’s estate.
Additionally, New York’s real estate market often involves co-ops, which can complicate trust funding. Some co-op boards may require specific approvals to transfer shares into a trust, so consulting with an attorney familiar with New York co-op regulations is crucial. Goldstein Mauer PLLC in New York, New York, can help.
Irrevocable Trusts: Asset Protection and Tax Benefits
Irrevocable trusts are powerful estate planning tools, offering robust asset protection and tax advantages for individuals managing New York’s complicated legal and financial setting.
Overview
An irrevocable trust is a trust that, once created, can’t be modified or terminated without the consent of the beneficiaries or a court order. The grantor relinquishes control over the assets, which are no longer considered part of their estate. This loss of control comes with significant benefits, particularly in asset protection and tax planning.
Key Features
Irrevocable trusts are designed to provide permanence and protection, making them a strategic choice for specific financial and estate planning goals in New York.
Permanence: Once assets are transferred to an irrevocable trust, the grantor can’t reclaim them or alter the trust’s terms without extraordinary measures.
Asset protection: Assets in an irrevocable trust are generally protected from creditors, lawsuits, and Medicaid spend-down requirements.
Tax advantages: Assets are removed from the grantor’s taxable estate, potentially reducing federal and New York estate taxes.
Specific purposes: Irrevocable trusts are often used for specific goals, such as Medicaid planning, charitable giving, or protecting assets for future generations.
These features make irrevocable trusts an effective tool for individuals seeking long-term asset security and tax efficiency.
Benefits
Irrevocable trusts offer significant advantages for protecting wealth and minimizing tax liabilities in New York’s high-stakes financial environment.
Asset protection: In New York, where lawsuits and creditor claims are common, an irrevocable trust can shield assets from legal judgments or business liabilities. For example, professionals like doctors or business owners may use irrevocable trusts to protect wealth from malpractice or commercial lawsuits.
Medicaid planning: New York has a five-year look-back period for Medicaid eligibility. Transferring assets to an irrevocable trust at least five years before applying for Medicaid can protect those assets from being counted toward eligibility, preserving wealth for heirs.
Estate tax reduction: By removing assets from the grantor’s estate, an irrevocable trust can reduce or eliminate federal and New York estate taxes. This is particularly relevant for high-net-worth individuals in New York, where the estate tax rate can reach 16% for estates above the exemption threshold.
Charitable goals: Irrevocable trusts like Charitable Remainder Trusts (CRTs) or Charitable Lead Trusts (CLTs) allow grantors to support New York-based charities while receiving tax benefits or providing income to beneficiaries.
By leveraging these benefits, irrevocable trusts provide a robust structure for safeguarding assets and achieving tax-efficient estate planning.
Drawbacks
While powerful, irrevocable trusts come with trade-offs that require careful consideration in New York’s legal and financial context.
Loss of control: Once the assets are in the trust, the grantor can’t access or manage them, which can be a significant drawback for those who value flexibility.
Involvement and cost: Irrevocable trusts are more complicated to establish and maintain, often requiring ongoing legal and accounting support. In New York, depending on the trust's complications, legal fees for setting up an irrevocable trust can range from $3,000 to $10,000 or more.
Tax filing requirements: Irrevocable trusts must file separate tax returns (IRS Form 1041), and trust income may be taxed at higher rates than individual income.
These drawbacks highlight the importance of thorough planning to assure an irrevocable trust aligns with your financial objectives.
New York-Specific Considerations
New York’s high cost of living and strict Medicaid rules make irrevocable trusts a popular choice for long-term care planning. For example, an Irrevocable Medicaid Trust can protect a home or savings from being sold to cover nursing home costs, provided the transfer occurs outside the five-year look-back period.
However, New York’s Department of Health closely scrutinizes such trusts, so precise compliance with state regulations is essential.
Additionally, New York’s estate tax “cliff” means that if an estate exceeds the exemption amount ($7,160,000 in 2025), the entire estate is taxed, not just the amount above the threshold. An irrevocable trust can help keep an estate below this threshold by removing assets, but careful planning is needed to avoid unintended tax consequences.
Contact an Estate Planning Attorney Today
Choosing between a revocable and irrevocable trust in New York requires careful consideration of your financial goals, estate size, and need for flexibility or protection. Revocable trusts offer control and simplicity, making them ideal for avoiding probate and managing assets during your lifetime.
Irrevocable trusts provide powerful tax and asset protection benefits but require sacrificing control. By understanding the legal, tax, and practical implications in New York’s unique context, you can select the trust that best secures your legacy and supports your loved ones.
Consulting with New York estate planning attorneys like Joshua J. Goldstein and Sharon Mauer is essential to managing the state’s complicated laws and making sure your trust aligns with your long-term objectives.
We serve the New York City metro area, including the five boroughs (Manhattan, Brooklyn, Queens, the Bronx, Staten Island), Long Island, Westchester County, and Rockland County. Contact our staff at Goldstein Mauer PLLC today.
