Should I Set Up A Revocable Trust Or Irrevocable Trust?
Many people and families in Massachusetts can benefit from setting up a trust as part of their estate plan. If you are considering trust planning, one of the first questions you need to answer is: Should I set up a revocable trust or an irrevocable trust? Here, our Norwood elder law attorney provides an overview of the considerations to keep in mind when deciding between a revocable trust and an irrevocable trust in Massachusetts.
Consideration #1: The Desire for Flexibility and Control
Do you want a flexible trust that you can retain control over during the course of your lifetime? You need a revocable trust and not an irrevocable trust. Flexibility and control are big considerations. A revocable trust offers maximum flexibility for individuals who want to retain control over their assets during their lifetime. In the Commonwealth, the grantor can amend, revoke, or terminate the trust at any time (Mass. Gen. Laws ch. 203E, § 602). Revocable trusts work best for those seeking ease of management, probate avoidance, and privacy.
Consideration #2: The Need for Asset Protection
Asset protection is a big reason why many people and families in Norwood and elsewhere in the Greater Boston area look into trusts. If you need asset protection from your trust, an irrevocable trust is the right option, not a revocable trust. In fact, only an irrevocable trust can be used in long-term care or nursing home planning. While an irrevocable trust provides far greater protection, there are certain drawbacks or limitations. For irrevocable trusts used to shelter assets for Medicaid (called MassHealth in Massachusetts) qualification, the person creating the trust and transferring assets (called the Grantor) is limited to income. That is, the Grantor can only take out income earned during a calendar year. Provided the Grantor named Lifetime Principal Beneficiaries, which are usually one or more adult children, the Trustee can distribute principal to these beneficiaries with typically little restrictions. For irrevocable trusts used to reduce or eliminate estate taxes, the Grantor relinquishes access to income and principal. The Grantor is said to have made a completed gift where they “wave goodbye” to the funds. Regardless of the type of irrevocable trust, that is, income-only or completed gift, there is some loss of control. In addition, the terms generally cannot be changed or terminated without the consent of beneficiaries or a court order. With regard to changes to, and not termination of, the irrevocable trust, if the trust contains a testamentary limited power of appointment, the Grantor can rewrite the distribution designs of the irrevocable trust by creating a new Last Will and Testament exercising such LPOA. At the Grantor’s death, the new language in the Last Will and Testament will replace and override those sections in the irrevocable trust. That loss of some flexibility and control comes with a big benefit, either preserving assets from being used to pay for long-term costs in a nursing home that averages $16,500 or more per month in the Greater Boston area or estate tax minimization.
Consideration #3: Estate Tax Planning
When deciding between a revocable and irrevocable trust, tax implications should play a central role. A revocable trust provides income tax advantages during the life of the Grantor because the IRS still treats the grantor as the owner of the trust assets. That means, that the income earned on assets in a revocable trust is reported by the Grantor on his or her Form 1040 tax return and pays at the lower, individual tax rate. Because those “completed gift” trusts or non-grantor trusts reach the highest federal income tax rate of 37% when its taxable income exceeds $15,650 (in 2025), while a single filer (with or without a grantor trust) does not hit the 37% bracket until their income exceeds $626,350 (in 2025), the revocable, grantor tax trust provides obvious income tax benefits. The irrevocable, non-grantor trust, in contrast, can remove assets from the taxable estate thus reducing an estate’s estate tax liability and providing for more assets to be passed on to the beneficiaries.
Call Our Norwood, MA Elder Law Attorney Today
At Fisher Law LLC, our Massachusetts elder law attorney is knowledgeable, having a masters in tax law (LL.M in taxation), experienced, and solutions-driven We can help you in basic estate planning, advanced estate tax planning, Medicaid or long-term care planning, special needs planning, and estate and trust administration. We want to make sure you have the right structure in place to protect your family. If you have any questions about trusts, please do not hesitate to contact us for a completely confidential case review. It is our mission to provide individualized solutions for our clients. . With an office in Norwood, we serve communities in the Greater Boston area.
