Revocable vs. Irrevocable Trust Upon Death

by Ciaran John ; Updated July 27, 2017

Revocable and irrevocable trusts are two types of living trusts that you can create during your lifetime. Both trust types are ultimately designed to pass your assets to your heirs upon your death. You can make changes to a revocable trust at any time, but when you die the trust becomes irrevocable since you no longer have the capability to revoke it. However, in the immediate aftermath of your death, revocable and irrevocable trusts are handled differently.

Trustee

When you create an irrevocable living trust, you must name someone to act as the trustee. That individual must act in the best interests of the trust and comply with the instructions detailed in the trust agreement. However, you as the trust writer or grantor have no direct control over the trust or the assets inside it. The trustee manages your trust before and after your death and you cannot remove a trustee from the trust.

In contrast, you can act as the trustee of your own revocable trust. This means that you must find someone to act as the successor trustee and that individual must assume the trustee role upon your death. If you do not keep detailed records, the successor trustee may have trouble locating and then liquidating the trust assets.

Taxpayer Identification Number

Although revocable living trusts are legal entities under state law, the Internal Revenue Service does not regard you and your trust as being separate entities because your ability to revoke the trust means that you have control over the trust assets. Therefore, you and your trust both file taxes under your Social Security number during your lifetime.

An irrevocable trust, on the other hand, must have its own Taxpayer Identification Number (TIN) since you do not have direct control of the trust's assets. When you die, an irrevocable trust continues to function as before in terms of taxation, but the successor trustee of a revocable trust has to apply for a TIN.

Death Taxes

The assets inside an irrevocable living trust are not subject to death taxes because you and your trust are separate tax entities. However, since you and your revocable trust share the same TIN, your trust assets are regarded as part of your estate for tax purposes. As of 2011, if the value of your estate exceeds $5 million, your estate becomes subject to death or estate taxes. Estate taxes amount to 35 percent, but you can avoid these taxes altogether if you create an irrevocable as opposed to a revocable living trust.

Considerations

After your successor trustee pays the death taxes, acquires a TIN and assumes full control of your trust, then your revocable trust functions in the same manner as an irrevocable trust. The assets inside both types of trust are passed onto the trust beneficiaries, and trust assets are excluded from probate. Many people create revocable and irrevocable trusts so that their heirs can avoid the cost of probate. However, unless you have a large estate, the legal costs of creating a trust may outweigh the potential savings.