Although it may be tempting to set up a will and consider your estate planning complete, trusts should potentially be part of your plan too, even if you aren't so wealthy that you aim to have an estate plan in the millions.
"Creating the right trust can make estate planning smoother, more private, and less stressful for your family," explained Phillip Reed, estate planning and asset protection attorney at Reed Law PLC. "Trusts keep your affairs out of the public record, speed up distributions, cut down on court costs and delays, help minimize taxes and simplify transfers of property in multiple states."
There are different kinds of trusts, though, including revocable and irrevocable trusts, and you'll want to pick the right one. Both types of trusts have pros and cons that can significantly affect your estate and beneficiaries, so it's important to consider your goals for your trust and think about factors like your net worth and what type of tax shelter your heirs may need.
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Revocable vs. irrevocable trust
How do you decide whether a revocable vs. irrevocable trust is best for you and your family?
Both types allow you to avoid the dreaded probate process when a court manages the distribution of your assets after death.
"Probate is a lengthy, stressful, and expensive process that is much more likely to exacerbate family conflicts and lead to extended litigation," explained Joseph Fresard, an elder law and estate planning attorney at Simasko Law.
Both types of trusts also allow you to appoint a trustee to manage the trust, and create a separate legal entity that owns your assets and controls the treatment of your real estate, cash, and other investments.
"Trusts help ensure someone you choose can manage your assets seamlessly if you become incapacitated with no court oversight or disruption," Reed explained. "Trusts also cover both death and incapacitation, which people often forget. Having assets properly managed and used if you or your loved one is incapacitated is key to family harmony. "
However, there are important differences, and the type of trust that should be part of your estate planning documents comes down to what you wish to accomplish.
Revocable trust: the people’s choice
As its name suggests, a revocable trust, also called a revocable living trust, gives you the right to make changes to or terminate the trust in your lifetime.
Its biggest benefit is the flexibility and control it gives the grantor — or you, the asset owner. The biggest drawback is that assets in the trust are still counted toward income and estate taxes. Assets are also not protected from creditors, legal judgments, liens, and other obligations.
"Deciding between a revocable and an irrevocable trust comes down to your individual and family priorities as well as risk profile," Reed said. "If you want flexibility and control, being able to change terms, access assets, and keep options open, a revocable trust usually fits, and is the preferred planning method for most people."
Most people choose to set up revocable trusts unless they are high-net-worth individuals seeking to maximize their estate and gift tax exemption, confirmed Betty Wang, president of BW Financial Planning in Denver.
For 2025, assets up to $13.99 million per person ($27.98 million for a married couple) are exempt from federal estate and gift taxes. These numbers are going up to $15 million per person or $30 million per married couple in 2026. So, if a person’s estate is worth $22 million in 2026, they might choose to put $7 million in an irrevocable trust.
The remaining $15 million can be held in a revocable trust and is exempt from federal estate and gift taxes since it falls under the cap. However, they still have to pay income taxes on it. A total of 17 states also have some type of inheritance or estate tax that may be owed by the estate or heirs.
Typically, the owner or grantor serves as trustee of the revocable trust during the owner's lifetime, as long as the owner is not incapacitated, although others can also serve as trustees. A married couple can serve as co-trustees so that, when one spouse becomes incapacitated or dies, the other can carry on. When both have died, the trust becomes an irrevocable trust.
Irrevocable trust: is it really irrevocable, and does it offer better protection?
An irrevocable trust is one in which the grantor gives up the ability to control or benefit from the trust assets after the trust is established.
People choose this type of trust if they have a specific purpose for the funds, such as controlling the payout to beneficiaries, designating the funds for a purpose, and protecting assets from liens, legal judgments, creditors, divorces, and other obligations.
Due to changes in state law over the past few years, it has become easier to change irrevocable trusts. “It’s a bit of a misnomer that an irrevocable trust can’t ever be changed,” said Lee McGowan, president of Monument Group Wealth Advisors in Concord, Mass, which manages $550 million in assets. “You can — it depends on the situation.”
One way to change an irrevocable trust is by the designation of an independent trustee to make changes consistent with the grantor’s wishes. Another way is to give a beneficiary the power to appoint or redesignate the recipient of trust assets.
The court also can order changes to a trust — or trustees can do what’s called “decanting,” moving assets from an old trust to a new one with better terms and conditions, as long as the changes are reasonably consistent with the original intent of the trust, according to McGowan.
An attractive benefit of an irrevocable trust is that the grantor does not pay taxes on it; the trust can pay its own taxes without distributing its income.
Alternatively, the trust can choose to distribute the income to beneficiaries, who will pay the taxes. This might be a better option if the beneficiaries fall into a lower tax bracket.
That’s because the taxes levied on the trust can be at par with the highest income tax rates.
Trust tax brackets are much more compressed than individual tax brackets, so taxable income from the trust is taxed at the highest 37% rate at an income over $15,650 in 2025 (or $16,000 projected for 2026).
In contrast, the 37% tax rate doesn’t kick in for income taxes until $626,350 for a single taxpayer in 2025 or $640,600 under the 2026 tax brackets. For married filers, these numbers are $751,600 for joint filers in 2025 and $768,700 in 2026.
Still, irrevocable trusts add complexity, and with the estate tax exemption remaining near record highs into 2026, there may be less incentive to create them.
Revocable or irrevocable trust: which one to use?
Whether to use a revocable trust or an irrevocable trust depends on what you are trying to achieve.
If you want to avoid probate and don't need protection against creditors or to avoid estate tax, then a revocable trust may be the right choice. You have control over the assets while you are alive and can easily change your mind. But you don’t get a tax break with a revocable trust.
An irrevocable trust, on the other hand, may be the better choice if your priority is reducing taxes and protecting assets. By transferring assets into an irrevocable trust, you remove them from your taxable estate, protect them from being lost, and ensure they go to your chosen beneficiaries.
Keep in mind that you give up control, so it's important to be certain about your decisions before setting one up.
Related trusts
Irrevocable and revocable trusts are just a small sampling of the trusts out there. There are others that you may want to create in certain circumstances.
Beneficiaries with disabilities may need a supplemental needs trust or special needs trust, which can be revocable or irrevocable. These trusts provide for disabled beneficiaries without jeopardizing their government benefits.
Business trusts can help protect assets within LLCs, among others.
Life insurance trusts, which hold proceeds from insurance policies, are also fairly common but are irrevocable.
States with the most favorable trust laws
A trust created in one state is valid in all other states. However, each state has its own rules that apply to trusts.
You can set up a trust in any state in which you have sufficient connections, such as having a vacation home in that state.
In general, look at each state’s tax treatment of trusts, asset and creditor protection, privacy, and modification rules.
The best states for trusts are Delaware, Nevada, and South Dakota, according to U.S. Bank.
These states do not charge state income taxes, offer perpetual trusts that are passed down through generations indefinitely, provide asset protection, and offer flexible decanting.
However, if the trust elects to shift the tax burden to beneficiaries, these favorable tax laws will be moot if beneficiaries don’t live in these states.
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