Revocable vs Irrevocable Trust California 2025: Which Do You Need?

Revocable vs Irrevocable Trust: Side-by-Side Comparison

Feature	Revocable Trust	Irrevocable Trust
Can You Change It?	✓ Yes, anytime	✗ No (rarely allowed)
Who Controls Assets?	You (as trustee)	Trustee (not you)
Avoids Probate?	✓ Yes	✓ Yes
Asset Protection?	✗ None	✓ Strong protection
Estate Tax Benefits?	✗ None	✓ Can reduce estate taxes
Income Taxes	You pay (on your return)	Trust or beneficiaries pay
Medicaid/Medi-Cal Planning?	✗ No benefit	✓ Can protect assets
Privacy?	✓ Private	✓ Private
Setup Cost	$400-$500 (online) or $2,000-$5,000 (attorney)	$3,000-$10,000+ (attorney required)
Best For	Most California families	High net worth, asset protection, Medi-Cal planning

What is a Revocable Trust (Living Trust)?

A revocable trust (also called a revocable living trust) is the most common type of trust in California. It's a legal document that holds your assets and allows you to:

• Maintain full control: You serve as the trustee and manage all assets
• Change it anytime: Modify beneficiaries, trustees, terms, or revoke entirely
• Avoid probate: Assets transfer directly to beneficiaries without court
• Plan for incapacity: Successor trustee takes over if you're unable
• Keep privacy: No public record (unlike a will)

How a Revocable Trust Works

During your lifetime:

1. You create the trust and transfer your assets into it
2. You serve as the trustee and maintain complete control
3. You can buy, sell, mortgage, or manage assets normally
4. You pay income taxes on trust assets (no separate tax return)
5. You can change beneficiaries or trustees anytime

When you die:

1. The trust becomes irrevocable (can't be changed)
2. Your successor trustee takes control
3. Assets distributed to beneficiaries per your instructions
4. No probate court involvement
5. Process takes 2-4 weeks instead of 12-18 months

What is an Irrevocable Trust?

An irrevocable trust is a permanent trust that you cannot change, amend, or revoke after it's created. Once you transfer assets into an irrevocable trust, you give up ownership and control.

Key Characteristics of Irrevocable Trusts

• Permanent: Cannot be changed or canceled (except in rare court circumstances)
• No control: Trustee controls assets, not you
• Asset protection: Assets protected from creditors and lawsuits
• Tax benefits: Assets removed from your taxable estate
• Medi-Cal planning: Can help qualify for Medicaid/Medi-Cal
• Separate tax return: Trust files its own tax return (Form 1041)

Common Types of Irrevocable Trusts in California

1. Irrevocable Life Insurance Trust (ILIT): Removes life insurance from taxable estate
2. Charitable Remainder Trust: Provides income while donating to charity
3. Special Needs Trust: Protects disabled beneficiary's government benefits
4. Medicaid Asset Protection Trust (MAPT): Protects assets for Medi-Cal eligibility
5. Qualified Personal Residence Trust (QPRT): Transfers home while living in it
6. Grantor Retained Annuity Trust (GRAT): Transfers appreciating assets with reduced taxes

Key Differences Explained

1. Control and Flexibility

Revocable Trust: You maintain complete control. You can change beneficiaries, add or remove assets, change trustees, modify terms, or completely revoke the trust at any time.

Irrevocable Trust: You give up control permanently. Once created, you cannot:

• Change beneficiaries
• Remove assets
• Modify terms (except in rare circumstances with court approval)
• Cancel the trust

2. Asset Protection

Revocable Trust: Provides zero asset protection. Since you control the assets, creditors can reach them just as if you owned them outright. Lawsuits, creditors, and judgments can attach to trust assets.

Irrevocable Trust: Provides strong asset protection. Since you don't own or control the assets, creditors generally cannot reach them. This protects against:

• Lawsuits and judgments
• Creditor claims
• Bankruptcy (assets transferred before filing)
• Long-term care costs (with proper Medicaid planning)

3. Estate Taxes (Federal)

2025 Federal Estate Tax Exemption: $13.99 million per person

Revocable Trust: Assets remain in your taxable estate. If your estate exceeds $13.99M ($27.98M for married couples), you'll owe estate taxes at 40% on amounts over the exemption.

Irrevocable Trust: Assets transferred to irrevocable trust are removed from your taxable estate, potentially saving millions in estate taxes for high net worth individuals.

Example:

• Estate value: $20 million
• Exemption: $13.99 million
• Taxable amount: $6.01 million
• Estate tax (40%): $2.4 million

An irrevocable trust could save this $2.4M in estate taxes.

4. Income Taxes

Revocable Trust: All income from trust assets is reported on your personal tax return (Form 1040). The trust doesn't file a separate return. No tax difference from owning assets personally.

Irrevocable Trust: Trust files its own tax return (Form 1041). Depending on the trust type:

• Grantor trust: Income still reported on your personal return
• Non-grantor trust: Trust pays taxes (at higher trust tax rates) or passes income to beneficiaries

5. Medicaid/Medi-Cal Eligibility

Revocable Trust: Assets in revocable trust count as your assets for Medi-Cal (California Medicaid) eligibility. They must be spent down before qualifying for long-term care benefits.

Irrevocable Trust: Assets properly transferred to irrevocable trust (outside the 30-month look-back period) are not counted for Medi-Cal eligibility, potentially saving hundreds of thousands in long-term care costs.

Example:

• Transfer $500,000 home to irrevocable trust
• Wait 30 months (Medi-Cal look-back period)
• Apply for Medi-Cal for nursing home care
• Home protected from $150,000/year nursing home costs

Pros & Cons of Each Trust Type

Revocable Living Trust

Irrevocable Trust

Which Trust Do You Need?

You Need a Revocable Living Trust If:

• ✓ You own California real estate
• ✓ Your assets exceed $184,500 (California probate threshold)
• ✓ Your estate is under $13.99 million
• ✓ You want to avoid probate costs ($27K-$68K+)
• ✓ You value privacy
• ✓ You want flexibility to make changes
• ✓ You want incapacity protection
• ✓ You're a typical California homeowner

Bottom line: A revocable living trust is right for 95% of California families.

You May Need an Irrevocable Trust If:

• ✓ Your estate exceeds $13.99 million (estate tax planning)
• ✓ You need serious asset protection (high-risk profession)
• ✓ You're planning for Medi-Cal/Medicaid eligibility
• ✓ You own substantial life insurance (ILIT)
• ✓ You want to protect assets from lawsuits
• ✓ You have a disabled beneficiary (special needs trust)
• ✓ You want to donate to charity while receiving income
• ✓ You're comfortable giving up control permanently

Bottom line: Only use irrevocable trusts for specific advanced planning needs with expert legal advice.

Tax Differences: Revocable vs Irrevocable

Income Tax Treatment

Tax Aspect	Revocable Trust	Irrevocable Trust
Tax Return	Your personal Form 1040	Separate Form 1041 (trust return)
Tax ID (EIN)	Use your SSN	Separate EIN required
Who Pays Taxes	You (the grantor)	Trust or beneficiaries
Tax Rates	Individual rates (10%-37%)	Trust rates (10%-37%, brackets compressed)
Top Tax Bracket	$609,350+ income (single)	$15,200+ income
Standard Deduction	$14,600 (single, 2025)	$100-$300 (minimal)

Estate Tax Treatment

2025 Federal Estate Tax: $13.99 million exemption per person

Estate Value	Revocable Trust	Irrevocable Trust
Under $13.99M	$0 estate tax	$0 estate tax
$20M	$2.4M tax (on $6M excess)	$0 (assets removed from estate)
$30M	$6.4M tax (on $16M excess)	$0 (assets removed from estate)
$50M	$14.4M tax (on $36M excess)	$0 (assets removed from estate)

Gift Tax Implications

Revocable Trust: No gift tax. Transferring assets to your revocable trust is not a taxable gift because you still own and control the assets.

Irrevocable Trust: May trigger gift tax. Transferring assets to irrevocable trust is a completed gift. You can use:

• Annual exclusion: $18,000 per recipient (2024)
• Lifetime exemption: $13.99 million (2025)
• Gifts over these amounts require filing Form 709 (gift tax return)

Asset Protection: Which Trust Protects Your Assets?

Revocable Trust: Zero Asset Protection

A revocable trust provides no asset protection from:

• ✗ Lawsuits and judgments
• ✗ Creditor claims
• ✗ Bankruptcy
• ✗ Divorce (in some cases)
• ✗ Long-term care costs

Why? Because you maintain complete control over the assets, the law treats them as if you own them outright. Creditors can reach revocable trust assets just as easily as assets in your name.

Irrevocable Trust: Strong Asset Protection

An irrevocable trust provides strong asset protection from:

• ✓ Future creditor claims
• ✓ Lawsuits filed after transfer
• ✓ Judgments
• ✓ Bankruptcy (if transferred before insolvency)
• ✓ Long-term care costs (after Medicaid look-back)

Why? Because you don't own or control the assets, creditors generally cannot reach them.

Who Needs Asset Protection?

Consider an irrevocable trust for asset protection if you are:

• Doctor, surgeon, or medical professional (malpractice risk)
• Attorney, accountant, or professional (liability exposure)
• Real estate investor or landlord (lawsuit risk)
• Business owner (commercial liability)
• High net worth individual (target for lawsuits)
• Planning for long-term care (Medi-Cal asset protection)

How to Decide: Revocable or Irrevocable Trust?

Decision Framework

Start with these questions:

1. Is your estate over $13.99 million?
   • NO → Revocable trust (no estate tax anyway)
   • YES → Consider irrevocable for estate tax planning
2. Do you need asset protection from lawsuits/creditors?
   • NO → Revocable trust
   • YES → Consider irrevocable trust
3. Are you planning for Medicaid/Medi-Cal eligibility?
   • NO → Revocable trust
   • YES → Consider irrevocable Medicaid Asset Protection Trust
4. Do you want to maintain flexibility and control?
   • YES → Revocable trust
   • NO → Irrevocable trust (but rare)
5. Are you comfortable permanently giving up asset ownership?
   • NO → Revocable trust
   • YES → Irrevocable trust may work

Common Scenarios

Scenario 1: Typical California Homeowner

• Age: 55
• Assets: $800,000 (home + retirement accounts)
• Goal: Avoid probate, maintain control
• Recommendation: Revocable living trust ($400-500)
• Why: Under estate tax threshold, wants flexibility, probate avoidance

Scenario 2: High Net Worth Individual

• Age: 65
• Assets: $25 million
• Goal: Reduce estate taxes, preserve wealth
• Recommendation: Revocable living trust + Irrevocable trusts for tax planning
• Why: Estate tax exposure ($4.4M tax), need advanced planning

Scenario 3: Elderly Person Planning for Nursing Home

• Age: 78
• Assets: $400,000
• Goal: Protect assets from nursing home costs
• Recommendation: Medicaid Asset Protection Trust (irrevocable)
• Why: Transfer assets now, wait 30 months, qualify for Medi-Cal, save $150,000/year nursing home costs

Scenario 4: High-Risk Profession (Doctor)

• Age: 45
• Assets: $2 million
• Goal: Lawsuit protection, maintain control of some assets
• Recommendation: Revocable trust (primary) + Irrevocable trust (portion of assets)
• Why: Keep flexibility with revocable trust, protect significant assets in irrevocable trust from malpractice lawsuits

Frequently Asked Questions

Can I convert a revocable trust to irrevocable?

Yes. You can convert a revocable trust to irrevocable at any time, though this is permanent. Some people do this for Medicaid planning or asset protection. However, you cannot convert an irrevocable trust back to revocable.

What happens to a revocable trust when I die?

When you die, your revocable trust automatically becomes irrevocable (cannot be changed). Your successor trustee distributes assets to beneficiaries according to your instructions, without probate court.

Do I need both a revocable and irrevocable trust?

Most people only need a revocable trust. You might need both if you have:

• Estate over $13.99M (irrevocable for tax planning)
• Life insurance (irrevocable life insurance trust)
• Asset protection needs (irrevocable for protection)
• Disabled beneficiary (special needs irrevocable trust)

Can creditors reach assets in a revocable trust?

Yes. Creditors can reach assets in your revocable trust because you control them. Revocable trusts provide zero asset protection from lawsuits, judgments, or creditor claims.

Can creditors reach assets in an irrevocable trust?

Generally no. Properly structured irrevocable trusts protect assets from future creditors because you don't own or control the assets. However, transfers made to defraud existing creditors can be reversed.

Which trust saves more in estate taxes?

Irrevocable trusts reduce estate taxes by removing assets from your taxable estate. However, this only matters if your estate exceeds $13.99 million (2025). For estates under this threshold, neither trust type affects estate taxes (zero tax either way).

How much does it cost to create each type of trust?

• Revocable trust: $400-$500 (online with attorney review) or $2,000-$5,000 (attorney)
• Irrevocable trust: $3,000-$10,000+ (attorney required, more complex)

Can I be the trustee of an irrevocable trust?

Generally no. If you serve as trustee of an irrevocable trust, you maintain too much control and lose the tax and asset protection benefits. Irrevocable trusts typically require an independent trustee (family member, friend, or professional trustee).

Which trust is better for Medi-Cal planning?

Irrevocable trust. Only irrevocable trusts (specifically Medicaid Asset Protection Trusts) can protect assets for Medi-Cal eligibility. You must transfer assets at least 30 months before applying for Medi-Cal (California's Medicaid look-back period).

Should I put my house in a revocable or irrevocable trust?

Most Californians: Revocable trust to avoid probate while maintaining control and the ability to sell, mortgage, or refinance.

Special situations for irrevocable:

• Medicaid/Medi-Cal planning (must wait 30 months)
• Serious asset protection needs
• Estate over $13.99M (estate tax planning)

Disclaimer: This article provides general information about California living trusts and should not be considered legal advice. For specific estate planning guidance, consult with a licensed California estate planning attorney. Laws and exemption amounts are current as of January 2025 and subject to change.