Trusts are a common part of an estate plan, and the choice between a revocable and an irrevocable trust turns on what you want the assets to do. One keeps your control and your flexibility. The other trades both away for treatment you cannot get while holding on.
This page walks through what each one is, what it does well, and where each falls short.
What Is a Trust?
A trust is a legal entity established by someone to manage their assets. Trusts are set up while someone is alive so that their wishes about how their assets are used can be honored. Once the assets are placed into a trust the trust will name a trustee who will manage the trust assets. The trustee is responsible for investing the assets and distributing them upon the death of the owner of the trust after they pass away.
A trust is a separate instrument from a will, and most people arrive not knowing the difference. When you place assets into a trust you become the settlor, often called the grantor, and a trustee manages those assets. The trustee must manage the trust according to its terms and in the beneficiaries’ interests.
The practical draw for most families is that assets held in a properly funded trust generally pass outside probate. That can mean a faster transfer and a more private one than a will alone provides. Funding is what makes that work, since a trust that was signed but never had assets moved into it does not keep anything out of probate.
What Is a Revocable Trust?
A revocable trust (often also called a living trust) is a trust where the terms can be changed at any time. Items that can be changed include:
- Beneficiaries can be either added or removed.
- The amount to be distributed to beneficiaries upon the death of the owner can be adjusted.
- Changes can be made to how assets are managed within the trust.
One downside of a revocable vs irrevocable trust is that the assets in a revocable trust can be reached by creditors if payment is needed on a debt. In addition, when the grantor of a revocable trust dies, the trust becomes irrevocable and its assets count toward the grantor’s estate for federal estate tax purposes. Colorado does not impose its own estate or inheritance tax. Additional information on revocable trusts in Colorado can be found under Colorado Revised Statute § 15-5-602 (2018).
What Is an Irrevocable Trust?
An irrevocable trust is harder to change than a revocable one, but not frozen. Colorado’s trust code provides several routes, including modification by the settlor and all beneficiaries, approved by the court on petition, court modification where circumstances were not anticipated, modification to achieve the settlor’s tax objectives, nonjudicial settlement agreements, and decanting into a new trust. The biggest difference between a revocable and irrevocable trust is that the owner of an irrevocable trust essentially gives up all rights to ownership of the assets in the trust once the trust is established.
One benefit to having an irrevocable trust is related to tax obligations. A properly structured irrevocable trust can move assets out of the grantor’s taxable estate. Whether it does depends on how the trust is drafted and what powers or interests the grantor keeps, so this is not automatic.
Establishing an irrevocable trust can be difficult and often requires the help of an experienced attorney. Our estate planning attorneys at Johnson Law Group can recommend whether an irrevocable trust is best for you and your estate and would be able to help you establish one if needed.
Differences Between a Revocable vs. Irrevocable Trust
There are a variety of reasons why you may choose one trust over another. Each one does have specific benefits, which you may want to consider as you are building out your estate plan.
The benefits of a revocable trust include:
- Retirement accounts work differently from other assets. A 401(k) or IRA is not retitled into a trust during your life, because moving it can trigger tax consequences. A trust can instead be named as a beneficiary, and naming a trust rather than a person can change how quickly the account has to be paid out after death.
- The wishes of the owner at any given time: The owner may change their desires and implement them at any point while the trust is established, making the revocable trust very desirable if you know that you may change your mind in the future.
The drawbacks of a revocable trust include:
- No tax benefits to putting assets into the trust. All assets are subject to taxes, unlike in an irrevocable trust.
- No creditor protection: As we mentioned above, creditors can pull assets from a revocable trust to fulfill debts.
Similarly, irrevocable trusts have benefits and drawbacks that may be helpful to you and your estate in the decision-making process.
The benefits of an irrevocable trust include:
- Possible estate tax treatment: assets in a correctly structured irrevocable trust may sit outside the taxable estate. For 2026 the federal exemption is $15 million per person, indexed for inflation, and a married couple using portability can shelter $30 million. That puts this question out of reach for most estates.
- Creditor protection: assets you transfer to an irrevocable trust for someone else’s benefit are generally beyond your creditors’ reach, because you no longer own them. That protection has limits. Transfers made to defeat a known creditor can be unwound, and where an irrevocable trust can still distribute back to you, your creditors can reach whatever it could pay out.
The drawbacks of an irrevocable trust include:
- Limited ability to change the trust: amendment is possible but takes more than your own decision, and usually takes a court petition. Plan as though the terms will hold.
- Giving up ownership of assets and relying on a trustee: If you are a beneficiary of your trust while you are alive then you are relying on the trustee to access your assets. This lack of control over one’s assets is not as desirable for some.
Choosing The Right Trust for You
Our experienced legal team can help determine which trust is best for you based on your estate planning goals and needs. If you are simply trying to prepare for potential incapacitation and/or the inability to make decisions on your behalf, then a revocable trust may be sufficient. If protection from creditors, as well as tax shielding is important to you then an irrevocable trust may be a better fit. Either way, our team can work with you on your objectives, goals, and concerns to find the right fit for you.
Contact An Experienced Estate Planning Attorney Today
Our experienced estate planning attorneys at Johnson Law Group have helped people establish trusts and create estate plans and are prepared to work with you to find a solution that fits your needs and desires related to your assets. If you still have questions regarding the difference between a revocable vs irrevocable trust and the effect it may have on your estate, contact us today at (720) 706-5703 for a free consultation.
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