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You might think that moving your home, investments and savings into a trust will automatically protect those assets from creditors and estate taxes. Whether they are protected depends on the type of trust you choose. A revocable trust lets you keep control of your assets, while an irrevocable trust generally limits that control but may offer greater protection. Knowing the difference could save you money on estate taxes.
Who Controls Your Money in Each Type of Trust
With a revocable trust, you can usually manage the assets yourself, add or remove property, change who inherits it or cancel the trust. This can help your family avoid probate court and allow someone else to manage your assets if you become incapacitated. This control, however, does not protect your assets from creditors or federal estate taxes.
With an irrevocable trust, on the other hand, you usually choose someone else to manage the assets and follow the rules you set when creating the trust. You generally can’t take the assets back or change those rules on your own, although some changes might be possible. In return for giving up control, you may gain protection from creditors and reduce federal estate taxes. The table compares how much control and protection each type of trust offers:
| Feature | Revocable Trust | Irrevocable Trust |
|---|---|---|
| Who manages the assets | Usually you, as trustee | A trustee bound by the trust’s terms |
| Ability to change the terms | Can be amended or revoked while you are alive and legally competent | Changes may require consent, court approval or another procedure allowed by law |
| Creditor protection | Limited, since the assets are still treated as yours | Can be stronger if the trust is properly structured |
| Federal estate tax | Assets remain in your estate | Assets may be excluded if you give up the relevant rights |
| Basis for heirs 1 | Assets generally receive a stepped-up basis at death | Assets excluded from your estate generally do not receive a basis adjustment at your death, although exceptions can apply |
A financial advisor can help you decide which type of trust could reduce your estate taxes.
How Much Tax Money You Could Save With an Irrevocable Trust
Investments that grow inside an irrevocable trust may not count toward your estate when you die. Once you make the transfer, the trust legally owns those assets. Any increase in value may build outside your estate, depending on the trust terms and tax rules.
To show how this works, let’s break down a $20 million estate with $5 million in stock and $15 million in other property. In this example, the stock originally cost $4 million and doubles to $10 million by the time you die. The other property stays at $15 million. The table compares taxes under both revocable and irrevocable trusts:
| Revocable Trust | Irrevocable Trust | |
|---|---|---|
| Estate value at death | $25 million ($15 million + $10 million in stock) | $15 million (other property only) |
| Remaining estate tax exemption 2 | $15 million | $10 million ($15 million − $5 million gift) |
| Amount subject to estate tax | $10 million ($25 million − $15 million) | $5 million ($15 million − $10 million) |
| Federal estate tax at 40% | $4 million ($10 million × 40%) | $2 million ($5 million × 40%) |
| Heirs’ tax basis in the stock | $10 million | Generally $4 million |
| Capital gains tax when heirs sell 3 | $0 if they sell for $10 million | Up to $1.428 million (($10 million − $4 million) × 23.8%) |
| Total federal tax | $4 million | Up to $3.428 million ($2 million + $1.428 million) |
The federal estate tax generally applies when your estate and prior taxable gifts exceed the $15 million exemption in 2026. Amounts above the exemption can be taxed at up to 40%.
With a revocable trust, the stock still counts as part of your estate. If the stock’s tax basis resets to $10 million at death and your heirs sell it for that amount, they would not have a capital gain.
With an irrevocable trust, the stock may no longer count as part of your estate. The $5 million gift still uses part of your exemption. Your heirs may keep the original $4 million basis, creating a $6 million gain if they later sell the stock for $10 million, taxed at a combined 23.8% rate that includes the top 20% long-term capital gains rate and the 3.8% net investment income tax. 4
Overall, the irrevocable trust could save your heirs $572,000 in this example. The result could change if the stock value, tax basis, applicable tax rates or prior taxable gifts were different.
Deciding Which Trust Fits Your Goals
If your estate is likely to stay below the $15 million federal exemption, a revocable trust may meet many common estate-planning needs, depending on your goals. You keep full control of your assets and your family can avoid probate. An irrevocable trust may become more useful as your estate grows past that exemption or if you want stronger protection from creditors. It tends to work best for investments you expect to grow over many years and are comfortable no longer controlling.
A financial advisor can help you estimate whether your estate is likely to exceed the federal exemption and which assets could benefit from an irrevocable trust.
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Article Sources
All articles are reviewed and updated by SmartAsset’s fact-checkers for accuracy. Visit our Editorial Policy for more details on our overall journalistic standards.
- Internal Revenue Service. “Publication 551, Basis of Assets.” https://www.irs.gov/publications/p551.
- Internal Revenue Service. “Revenue Procedure 2025-32.” https://www.irs.gov/pub/irs-drop/rp-25-32.pdf.
- Internal Revenue Service. “Topic No. 409, Capital Gains and Losses.” https://www.irs.gov/taxtopics/tc409.
- Internal Revenue Service. “Topic No. 559, Net Investment Income Tax.” https://www.irs.gov/taxtopics/tc559.