The short answer
A revocable trust can be changed or cancelled by you at any time, and the law treats its assets as still yours. An irrevocable trust generally cannot be changed, and its assets are treated as no longer yours. That single difference drives everything else: control, taxes, estate tax, step-up in basis, and protection from creditors.
Revocable vs. irrevocable trust at a glance
| Revocable (living) trust | Irrevocable trust | |
|---|---|---|
| Can you change it? | Yes, at any time | Generally no, except through limited legal routes |
| Who controls the assets? | Usually you, as trustee | An independent or family trustee under the trust terms |
| Avoids probate? | Yes, for assets retitled into the trust | Yes, for assets it owns |
| Income tax | Reported on your own return | On your return if a grantor trust; otherwise the trust pays at compressed rates |
| In your taxable estate? | Yes | Usually not, if properly structured |
| Step-up in basis at death? | Generally yes | Generally no, if excluded from your estate |
| Creditor protection | None during your life | Often, depending on the trust and state law |
| Pennsylvania inheritance tax | Still applies | Gifts made more than a year before death are generally outside it, unless you kept certain rights |
Revocable living trusts
A revocable trust, often called a living trust, is a container you create and usually manage yourself. You move assets into it, keep full use of them, and name a successor trustee to take over if you become incapacitated or die. Because the trust owns the assets, they pass to your beneficiaries under the trust’s terms without going through probate.
Advantages
- Avoids probate for trust assets
- Keeps the details private
- Seamless management if you become incapacitated
- Can hold property in several states and avoid probate in each
- Flexible: change it whenever you like
Limitations
- No income, estate, or Pennsylvania inheritance tax savings
- No protection from your creditors
- Only works for assets actually retitled into it
- Costs more to set up than a simple will
Irrevocable trusts
An irrevocable trust is a separate owner. Once you transfer assets in, you generally cannot take them back or rewrite the terms. In exchange, those assets and their future growth can be removed from your taxable estate, and a well-drafted trust can protect beneficiaries from creditors, divorce, or their own spending. Common examples include:
- Irrevocable life insurance trusts (ILITs), which keep life insurance proceeds out of the estate.
- Spousal lifetime access trusts (SLATs), which move assets out of the estate while a spouse can still benefit.
- Grantor retained annuity trusts (GRATs), which shift future growth to heirs at little gift tax cost. See our GRAT planning guide.
- Dynasty and spendthrift trusts, which hold assets for children and grandchildren over long periods.
- Special needs trusts, which support a beneficiary without disrupting eligibility for public benefits.
Can you change an irrevocable trust?
“Irrevocable” is less absolute than it sounds. Depending on the document and state law, a trust may be modified with beneficiary consent, by a court, by “decanting” assets into a new trust with updated terms, or by a trust protector given that power. These options have limits and potential tax consequences and require an estate attorney.
How trusts are taxed
For income tax purposes, the key question is whether the trust is a grantor trust. Revocable trusts are always grantor trusts, and many irrevocable trusts are deliberately drafted that way: the creator keeps paying the income tax, which lets the trust grow untaxed. A non-grantor irrevocable trust is a separate taxpayer, and its brackets are extremely compressed:
| 2026 federal rate | Non-grantor trust | Married filing jointly |
|---|---|---|
| 10% | Up to $3,300 | Up to $24,800 |
| 24% | $3,300 – $11,700 | $211,400 – $403,550 |
| 35% | $11,700 – $16,000 | $512,450 – $768,700 |
| 37% | Over $16,000 | Over $768,700 |
Trust brackets per IRS Revenue Procedure 2025-32 as reported; married brackets abbreviated. Trusts also owe the 3.8% Net Investment Income Tax on undistributed investment income above the start of the top bracket.
Income a trust distributes to beneficiaries is generally taxed to them instead, at their own rates. That makes distribution decisions, and what the trust invests in, important: a trust holding taxable bonds and retaining the income can lose far more to tax than the same portfolio held by a beneficiary. Our guide to tax drag shows how quickly that adds up.
The step-up in basis trade-off
Assets included in your estate at death generally receive a step-up in basis to their market value, wiping out the built-in capital gain for your heirs. Assets in a revocable trust get this step-up. Assets you moved to an irrevocable trust to remove them from your estate generally do not: in Revenue Ruling 2023-2, the IRS confirmed that assets in an irrevocable grantor trust excluded from the estate keep their original basis. With the federal estate tax exemption at $15 million per person in 2026, many families now weigh this lost step-up more heavily than the estate tax it avoids. Our estate tax estimator gives a rough view of federal exposure.
What Pennsylvania families should know
- A revocable trust does not avoid Pennsylvania inheritance tax. Trust assets are still taxed at each beneficiary’s rate: 0% for a spouse, 4.5% for children and grandchildren, 12% for siblings, 15% for others. See our Pennsylvania inheritance tax guide.
- Pennsylvania probate is relatively manageable. Estates are opened with the county Register of Wills, and filing fees are set by each county. For a simple estate held entirely in Pennsylvania, avoiding probate may save less time and money than families expect.
- When a revocable trust still makes sense here: real estate in another state (to avoid a second probate there), privacy, a plan for incapacity, a blended family, young or vulnerable beneficiaries, or a business that needs uninterrupted management.
- Irrevocable trusts and inheritance tax. Assets given to an irrevocable trust more than a year before death are generally outside Pennsylvania inheritance tax, unless you kept rights such as the income from those assets. This is one of the few ways to reduce the tax, and it needs careful drafting.
A trust only works if it is funded
The most common trust mistake is not in the document. It is leaving assets outside the trust. A revocable trust controls only what it owns, so anything still in your individual name may go through probate anyway. Funding a trust typically means:
- Real estate: recording a new deed transferring your home or investment property to the trust.
- Brokerage and bank accounts: retitling them in the trust’s name, or adding a transfer-on-death or payable-on-death beneficiary.
- IRAs and 401(k)s: these are not retitled. Instead, the beneficiary designations must be coordinated with the trust plan.
- A pour-over will: a backstop that directs anything left outside the trust into it, though those assets still pass through probate.
This is where an advisor and an attorney work together: the attorney drafts the trust, and we help make sure every account, deed, and beneficiary designation actually matches it, and review it again after each life change. See how we coordinate with your attorney on our estate planning page.
For a step-by-step checklist, including your home, a vacation property, and Pennsylvania’s realty transfer tax rules, read how to fund a trust.
Frequently asked questions
What is the difference between a revocable and an irrevocable trust?
A revocable trust can be changed or cancelled by the person who created it at any time, and its assets are still treated as that person’s for income and estate tax purposes. An irrevocable trust generally cannot be changed without beneficiary consent or court approval; in exchange, its assets can be removed from the creator’s taxable estate and may be protected from some creditors. A revocable trust is mainly a tool for avoiding probate and managing assets during incapacity, while an irrevocable trust is mainly a tool for estate tax planning, asset protection, and long-term control.
Does a revocable trust avoid Pennsylvania inheritance tax?
No. Assets in a revocable trust can pass outside probate if they were properly retitled to the trust, but they are still subject to Pennsylvania inheritance tax at the rate that applies to each beneficiary, such as 4.5% for children. A revocable trust is not a tax-saving tool in Pennsylvania.
Can you change an irrevocable trust?
Sometimes. Depending on state law and the trust document, an irrevocable trust may be modified with the consent of the beneficiaries, by court order, through decanting into a new trust, or by a trust protector named in the document. These options have limits and can have tax consequences, so changes should be handled by an estate attorney.
Do assets in an irrevocable trust get a step-up in basis at death?
Generally only if the assets are included in the creator’s taxable estate. In Revenue Ruling 2023-2, the IRS said assets in an irrevocable grantor trust that are excluded from the estate do not receive a basis step-up at the grantor’s death. Assets in a revocable trust are included in the estate and generally do receive a step-up.
How are trusts taxed in 2026?
A revocable trust and an irrevocable grantor trust are ignored for income tax purposes, so the creator reports the income. A non-grantor irrevocable trust is a separate taxpayer with compressed brackets: in 2026 it reaches the 37% federal rate at just $16,000 of retained taxable income, compared with $768,700 for a married couple filing jointly. Income distributed to beneficiaries is generally taxed to them instead, at their own rates.