Revocable vs. Irrevocable Trusts – Insights from Estate & Tax Attorney Patrick Norris
You’ve probably heard the terms revocable and irrevocable tossed around; and maybe even nodded along. But what do they really mean, and how can your business benefit?
Revocable trusts are flexible, living documents that let you manage and transfer your assets while avoiding delays in court after death. Irrevocable trusts, on the other hand, offer stronger asset protection and potential tax savings, but with less control once they’re set up. These structures are often associated with ultra-wealthy families, but serve as practical tools for entrepreneurs and business owners building a legacy.
The problem? Most people don’t know the ins and outs of using them to their advantage. Whether you’re focused on succession planning or just want to avoid court delays during a family crisis, knowing how trusts work can save stress and real money.
Estate and tax attorney Patrick Norris has years of hands-on experience navigating trusts. He breaks it down.
Revocable vs. Irrevocable Trusts: What Is a Revocable Trust?
Think of a revocable trust as a more flexible version of a will. It lets you hold and manage your assets while you’re alive – and then smoothly pass them on after death without sending your family through a lengthy court process to sort it all out. That legal process, called probate, can drag on for months, especially in larger cities. This, as you can imagine, adds to family stress and is not ideal amid an already challenging emotional period.
Unlike a will, which only takes effect after death, a revocable trust can actually own property during your lifetime. That means faster transitions as designated trustees have immediate access to assets, making it a smart move for business owners who need uninterrupted control over cash flow and operations.
Avoiding the Pitfalls of an Unfunded Trust
A common mistake? Setting up a trust, but never actually putting anything in it. Norris recounts one of his clients who purchased a revocable trust but never transferred any assets into it – leaving the family with little benefit and unnecessary delays.
To prevent that, a pour-over will is typically included as a backup. It ensures any assets not yet moved into the trust will “pour over” after death. Still, to fully avoid long delays and court involvement, it’s best to title key assets in the trust’s name from the outset.
Revocable vs. Irrevocable Trusts: What Is an Irrevocable Trust?
Irrevocable trusts offer less flexibility but greater protection, because once you transfer assets, they’re no longer yours. This means they’re shielded from estate taxes and, in some cases, creditors.
This structure might be especially useful if your net worth is climbing toward the federal estate tax exemption (currently $13.99 million per person). For instance, a high-growth business or life insurance policy could push your estate above the limit. Patrick Norris explains:
A $2 million life insurance policy alone could eventually push a young business owner over the exemption, especially as other assets appreciate.
Even if federal exemptions remain generous, many states have much lower thresholds. New York, Massachusetts, and Illinois, for example, impose estate taxes that kick in well below the federal level – sometimes as low as $1 million. So planning ahead with trusts can prevent unexpected tax hits later on.
Asset Protection and Irrevocable Trusts
Beyond tax strategy, irrevocable trusts can also help shield assets from lawsuits, creditors, and other financial threats. Norris outlines three levels of asset protection:
- Basic structuring between spouses – such as titling assets in the lower-risk partner’s name to reduce exposure to liability.
- Domestic irrevocable trusts – used to move high-value or at-risk assets, like real estate, out of personal ownership and into protected entities.
- Advanced international setups – including offshore trusts or asset vaults, which offer more aggressive protection strategies, though they are complex, expensive, and less common.
While the third tier may sound extreme, expert planning at the first two levels can provide meaningful protection, without ever needing to leave the country.
When a Trust Isn’t Always Necessary
While they offer great benefits, not every asset needs to go into a trust. Some bank accounts and retirement funds can bypass probate by naming beneficiaries. Joint bank accounts with survivorship rights also avoid probate.
However, for real estate, limited partnership interests, or business shares, especially those with voting rights, a trust provides long-term control and continuity. These are often the assets that matter most when it comes to protecting your family business.
Business Planning and Succession
Trusts often play a key role in succession and ownership planning. They can:
- Ensure voting rights and decision-making power pass smoothly to the right people
- Prevent disruption by converting shares to non-voting upon death or disability
- Create continuity in leadership and operations, even during unforeseen transitions
- Support buy-sell arrangements that fairly compensate family members or partners
For example, Norris explains how a trust can preserve voting rights or convert shares to non-voting in the event of a partner’s death, giving founders peace of mind and families a fair payout.
He also emphasizes flexibility: “You can set it up, so the company has the option to buy out your family over time with a promissory note, instead of being forced into a lump-sum deal.”
Organize the Details Before It’s Too Late
The biggest planning mistake Norris sees? Silence.
“Talk to your family. Let them hear your intentions directly from you. That personal conversation can do more than any legal document.”
Whether you’re transferring wealth, setting up successors, or just getting your estate organized, trust structures are only part of the plan. The real value comes from clear communication, regular record keeping, and making sure the right people are informed, while you’re still here to guide them.
Need help deciding which trust is right for your family business? Our family business consultants work with attorneys like Patrick Norris to support comprehensive tax and succession strategies that grow with your family. Contact us for help.
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