One of the most common questions I hear: "Should I get a living trust or an irrevocable trust?" My honest answer is usually: "It depends on what problem you're trying to solve."
These are genuinely different tools. Using the wrong one doesn't just waste money — it can leave you with no protection when you need it most. I've seen families spend $4,000 on a revocable trust thinking they'd protected their home from Medicaid, when in fact they hadn't done anything at all.
This guide explains exactly how each type works, what each one does and doesn't accomplish, and when to use each one.
The Fundamental Difference
A revocable trust can be changed or dissolved at any time while you're alive. An irrevocable trust, once created, generally can't be changed without a court order or the consent of all beneficiaries.
That difference drives everything else. Because a revocable trust remains under your control, the law treats its assets as still belonging to you. Because an irrevocable trust removes your control, the law — including Medicaid law and creditor law — treats those assets as genuinely no longer yours.
Control is the key variable. More control means more flexibility. Less control means more protection.
Revocable Living Trusts: What They Do
A revocable living trust (also called a revocable trust or living trust) is an estate planning tool, not an asset protection tool. Let me repeat that because people get this wrong constantly.
A revocable trust does not protect your assets from Medicaid. It does not protect your assets from creditors. It does not reduce your estate tax. It doesn't provide any lifetime asset protection at all.
What it does do is extremely valuable — but it's different.
Probate Avoidance
The main reason to use a revocable trust in New York: probate avoidance. Assets held in a revocable trust pass directly to your beneficiaries at death, without going through Surrogate's Court. No probate. No waiting 9–18 months. No public record. No court fees.
For a New York estate with significant assets — especially real estate — this saves real money and real time. Probate on a $1 million New York estate can cost $50,000–$90,000 in attorney fees, executor commissions, and court costs. A properly funded revocable trust eliminates that entirely.
Incapacity Planning
If you become incapacitated, the successor trustee can immediately step in and manage the trust assets. No guardianship. No court application. No waiting for Letters of Guardianship.
This is particularly valuable for New Yorkers with real estate, investment portfolios, or business interests. A durable power of attorney handles non-trust assets, but the trust handles everything inside it seamlessly.
Multi-State Property
If you own property in multiple states — a New York apartment and a Florida condo, for example — a revocable trust is essential. Without it, your family must open a probate proceeding in both New York and Florida. Ancillary probate (out-of-state) is expensive and slow. The trust eliminates it.
Privacy
A will becomes a public document when it's probated. Anyone can read it. A trust is private. Your beneficiaries, your asset distribution, your specific bequests — none of it becomes public record.
For clients who are business owners, public figures, or who simply value privacy, this matters.
Revocable Trust: The Limitations
A revocable trust doesn't protect you from:
- Medicaid: Since you control the trust, its assets count toward Medicaid's asset limits. Transferring your house to a revocable trust provides zero Medicaid protection.
- Creditors: Your creditors can reach trust assets while you're alive. The trust assets are legally still yours.
- Estate tax: Assets in a revocable trust are included in your taxable estate. No tax benefit.
- Lawsuits: A judgment against you can reach assets in a revocable trust.
Irrevocable Trusts: What They Do
An irrevocable trust is a separate legal entity. You transfer assets in. You give up direct control. But in exchange, you get protections that a revocable trust simply can't provide.
The specific type of irrevocable trust determines exactly what you get. Here are the most common types used in New York estate planning.
Medicaid Asset Protection Trust (MAPT)
This is the most common irrevocable trust I set up for New York clients. A MAPT is designed to protect assets — usually the family home — from Medicaid's spend-down requirements while still allowing you to live in the home and potentially receive income from the trust.
Here's how it works. You transfer your home to an irrevocable trust. You retain the right to live there (a life estate). The trust owns the home. Because you no longer legally own it, it's not a countable asset for Medicaid purposes — but only after a 5-year look-back period.
The 5-year look-back is critical. Medicaid looks back 5 years from the date of your application and penalizes any transfers made during that period. If you create a MAPT today and need Medicaid-covered nursing home care in 3 years, the look-back period will capture the transfer. Penalty period applies.
This is why the best time to set up a MAPT is when you're healthy and don't expect to need nursing home care anytime soon. Every year you wait is a year of protection you lose.
Irrevocable Life Insurance Trust (ILIT)
A standard life insurance policy is included in your taxable estate if you own it at death. An ILIT owns the policy instead. The death benefit pays into the trust and stays out of your taxable estate.
For New Yorkers with large life insurance policies and estates approaching the $7.16 million New York exemption, an ILIT can save hundreds of thousands in estate tax. The trust uses "Crummey powers" to allow the beneficiaries to treat annual premium payments as annual gifts.
Supplemental Needs Trust (SNT)
A supplemental needs trust holds assets for a disabled beneficiary without disqualifying them from government benefits like Medicaid or SSI. The trust supplements government benefits rather than replacing them.
Without an SNT, an inheritance — even $10,000 — can disqualify a disabled person from benefits worth far more. The SNT holds the money and pays for things Medicaid doesn't cover: a computer, travel, recreation, education.
Spousal Lifetime Access Trust (SLAT)
A SLAT is an irrevocable trust created by one spouse for the benefit of the other. The grantor spouse transfers assets to the trust, removing them from their taxable estate. The beneficiary spouse can access the trust assets during their lifetime.
SLATs are primarily estate tax planning tools. They work best when federal exemptions are high but expected to decrease. If the federal exemption drops from $13.61 million to around $7 million (as scheduled in 2026 under current law), a SLAT can lock in current exemption amounts.
Side-by-Side Comparison
| Feature | Revocable Trust | Irrevocable Trust |
|---|---|---|
| Can you change it? | Yes — at any time | Generally no |
| Probate avoidance | Yes | Yes |
| Medicaid protection | No | Yes (after 5-year look-back) |
| Creditor protection | No | Yes (if structured correctly) |
| Estate tax reduction | No | Yes (certain types) |
| Income tax | Reported on your personal return | Separate tax return (usually) |
| Control over assets | Full control retained | Control surrendered |
| Typical cost (NY) | $3,000–$6,000 | $5,000–$12,000+ |
When to Use a Revocable Trust
A revocable trust makes sense when your primary goals are:
- Avoiding probate on a significant New York estate
- Providing seamless incapacity planning
- Owning property in multiple states
- Maintaining privacy about your estate distribution
- Creating a structure for managing assets for minor children or grandchildren
A revocable trust is best for people who want flexibility. You can change beneficiaries, add or remove assets, update distribution instructions, or revoke the trust entirely. Life changes. A revocable trust can change with it.
Take Sandra, a 55-year-old Bronx homeowner with a co-op apartment, a brokerage account, and two adult children. Her primary goals are avoiding probate and making sure her children can access the estate without a court battle. A revocable trust is the right tool. She doesn't need asset protection right now — she needs smooth, private distribution at death.
When to Use an Irrevocable Trust
An irrevocable trust makes sense when your primary goals are:
- Protecting assets from Medicaid spend-down (especially the family home)
- Reducing your taxable estate
- Protecting assets from creditors or litigation
- Providing for a disabled beneficiary without disrupting government benefits
- Removing life insurance from your taxable estate
An irrevocable trust requires giving up control. That's a real sacrifice. But for Medicaid planning in particular, it's often the only tool that works.
Take Joseph, a 68-year-old Staten Island homeowner with a house worth $650,000. He's in good health now but knows nursing home costs ($15,000–$20,000 per month in New York) could wipe out the home he spent 30 years paying off. He creates a Medicaid Asset Protection Trust now. If he stays healthy for 5 years, the house is fully protected.
Can You Have Both?
Yes. Many of my clients use both types for different purposes. The family home goes into a MAPT for Medicaid protection. Other assets — brokerage accounts, savings — go into a revocable trust for probate avoidance. The revocable trust also acts as a "catch-all" for any assets not placed in the MAPT.
This dual-trust structure is particularly common for clients over 60 with significant home equity and moderate liquid assets. It addresses both the long-term care threat and the probate cost problem.
Tax Treatment: The Details
Tax treatment differs between the two types in important ways.
Revocable Trust Tax Treatment
A revocable trust is a "grantor trust" for federal income tax purposes. All income, gains, and losses flow through to your personal tax return. The trust doesn't file its own tax return while you're alive. Assets in the trust get a stepped-up basis at your death, which reduces capital gains tax for your heirs.
Irrevocable Trust Tax Treatment
Most irrevocable trusts must file their own federal income tax return (Form 1041). Trust income tax rates are compressed — they reach the highest rate (37%) at just $15,200 of income in 2025, compared to $609,350 for individuals. This can increase the tax burden on trust income.
However, certain irrevocable trusts — including many MAPTs — are structured as grantor trusts for income tax purposes, meaning income still flows to your personal return. This is intentional and usually beneficial. It allows you to pay the income taxes on trust assets, which further reduces your taxable estate.
Capital gains on irrevocable trust assets are more complex. Assets transferred to an irrevocable trust don't get a stepped-up basis at death. This is a significant disadvantage for highly appreciated assets. We carefully analyze capital gains implications before recommending any transfer to an irrevocable trust.
Modifying an Irrevocable Trust in New York
The name "irrevocable" isn't always permanent. New York law allows modification of irrevocable trusts in certain circumstances:
- Trust Decanting: New York's decanting statute (EPTL 10-6.6) allows a trustee to pour assets from one irrevocable trust into a new trust with different terms, subject to specific limitations.
- Judicial Modification: A court can modify an irrevocable trust if circumstances have changed in a way the grantor couldn't have anticipated, and modification furthers the trust's purposes.
- Consent of All Parties: If all beneficiaries and the grantor agree, certain modifications are possible.
These mechanisms exist but aren't easy or cheap. Don't create an irrevocable trust expecting to modify it later. Treat it as permanent and plan accordingly.
Funding the Trust: The Step Everyone Skips
A trust is just a piece of paper until you fund it. "Funding" means actually transferring assets into the trust's ownership.
For real estate, that means recording a new deed transferring the property to the trust. For bank accounts, it means changing the account title. For brokerage accounts, it means retitling the account. For life insurance, it means changing the owner and beneficiary.
I've seen clients who created a $5,000 revocable trust 10 years ago and never funded it. When they died, everything went through probate anyway. The trust document sat in a drawer, completely useless.
At Morgan Legal Group, our trust setup process includes funding assistance. We don't consider the trust "complete" until key assets are transferred in. Read our step-by-step guide on how to set up a trust in New York for the full funding process.
Common Mistakes With New York Trusts
Using a Revocable Trust for Medicaid Planning
This is the most expensive mistake. A client transfers her $700,000 home to a revocable trust thinking she's protected it from Medicaid. Three years later she needs a nursing home. Medicaid counts the home as her asset. She must sell it or spend down its value before qualifying. Every dollar in that trust was accessible to Medicaid.
Not Updating Beneficiary Designations
Creating a trust doesn't automatically transfer your retirement accounts or life insurance into it. Those have their own beneficiary designations. If your will says "everything to my trust" but your IRA has no beneficiary named, that IRA goes through probate.
Waiting Too Long to Start Medicaid Planning
The 5-year look-back can't be gamed. You can't create a MAPT in the hospital parking lot. You need to plan years in advance. Our elder law practice works with clients starting at 60–65 to create long-term protection strategies.
Key Takeaway: A revocable trust is the right tool for probate avoidance and incapacity planning. An irrevocable trust is the right tool for Medicaid protection, creditor protection, and estate tax planning. They serve different goals. Many New Yorkers need both. Choosing the wrong one — or creating one and not funding it — provides no benefit at all.
For more on protecting your assets in New York, read our guide on asset protection strategies for New Yorkers.
Additional resources on New York trust law at morganlegalny.com.
