How Probate Differs for Revocable and Irrevocable Trusts

Probate is the legal process of settling a deceased person's estate, ensuring debts are paid and assets are distributed according to a will or state law. Many individuals use trusts as estate planning tools to help avoid probate and provide for beneficiaries more efficiently. However, how a trust interacts with probate depends largely on whether it is revocable or irrevocable. Understanding the differences between these two types of trusts can help individuals make informed decisions about their estate plans.

If you need assistance with estate planning, including setting up revocable or irrevocable trusts, contact us by using the online form or calling 414-253-8500.

What Is Probate?

Probate is a court-supervised process that occurs after someone passes away. It involves:

Validating the will (if one exists).
Identifying and inventorying assets of the deceased.
Paying debts, taxes, and expenses related to the estate.
Distributing remaining assets to heirs or beneficiaries.

Assets held solely in the deceased's name typically go through probate, but assets placed in a trust-depending on the type-may bypass this process.

Revocable Trusts and Probate

What Is a Revocable Trust?

A revocable trust (also called a living trust) is a trust that the grantor (the person who creates the trust) can modify, amend, or revoke during their lifetime. It allows for flexibility in estate planning and is often used to manage assets efficiently.

Does a Revocable Trust Avoid Probate?

Yes, a properly funded revocable trust can help avoid probate for assets titled in the trust's name. However, there are some important considerations:

Ownership Matters: If assets are not transferred into the trust before the grantor's death, those assets may still go through probate.
Pour-Over Wills: Many estate plans include a pour-over will, which directs any remaining probate assets into the trust after death. These assets will still pass through probate before being distributed according to the trust terms.
Control and Access: Since the grantor retains full control of the trust while alive, the IRS and creditors may still consider trust assets as part of the grantor's personal estate.

Potential Probate Involvement

While a revocable trust minimizes probate involvement, it does not eliminate it entirely. For instance:

If the grantor dies without transferring all assets into the trust, probate may be required for those assets.
If disputes arise, a court may need to intervene.
Certain states may have trust-related filing requirements that involve probate courts.

Irrevocable Trusts and Probate

What Is an Irrevocable Trust?

An irrevocable trust is a trust that cannot be changed or revoked once it is created, except under limited circumstances and often with court approval. The grantor surrenders control of the assets placed in the trust, which legally separates them from the grantor's personal estate.

Does an Irrevocable Trust Avoid Probate?

Yes, an irrevocable trust is designed to avoid probate entirely because:

The assets in the trust are no longer owned by the grantor.
Upon the grantor's death, assets are distributed immediately to beneficiaries per the trust terms, without court involvement.
Creditors cannot claim against the trust assets as easily as they can with a revocable trust.

Additional Probate Considerations

Asset Protection: Since the grantor no longer owns the assets, they are protected from estate creditors and legal judgments.
Tax Benefits: In some cases, assets in an irrevocable trust may reduce estate taxes.
Less Flexibility: The inability to modify the trust means that changes in circumstances (e.g., divorce, new children, financial hardship) may require legal action to amend the trust.

Key Differences Between Revocable and Irrevocable Trusts in Probate

To better understand how probate differs for revocable and irrevocable trusts, consider the following key distinctions:

1. Ownership of Assets

Revocable Trust: The grantor retains ownership of trust assets until death, meaning they remain part of the taxable estate.
Irrevocable Trust: The trust itself is the legal owner of the assets, removing them from the grantor's personal estate.

2. Probate Avoidance

Revocable Trust: Helps avoid probate only if all assets are properly transferred into the trust. If assets are left outside the trust, probate may still be necessary.
Irrevocable Trust: Completely bypasses probate, as assets belong to the trust and not the deceased individual.

3. Control and Flexibility

Revocable Trust: The grantor can modify, revoke, or change the trust at any time.
Irrevocable Trust: Once created, the trust cannot be changed without court approval or beneficiary consent.

4. Creditor Protection

Revocable Trust: Does not offer protection from creditors because assets are still considered part of the grantor's estate.
Irrevocable Trust: Provides stronger protection from creditors, lawsuits, and Medicaid recovery, as assets are no longer owned by the grantor.

5. Estate Taxes

Revocable Trust: Assets remain part of the taxable estate, which means they could be subject to estate taxes.
Irrevocable Trust: Since the assets are no longer part of the grantor's estate, they may not be subject to estate taxes, depending on the structure of the trust.

Key Differences Between Revocable and Irrevocable Trusts

Feature	Revocable Trust	Irrevocable Trust
Control	Grantor retains full control and can modify or revoke the trust.	Grantor surrenders control; changes require court or beneficiary approval.
Probate Avoidance	Avoids probate only for properly funded assets.	Completely avoids probate for all assets in the trust.
Creditor Protection	No protection-creditors can access trust assets.	Strong protection-creditors cannot typically access assets.
Estate Tax Benefits	Assets remain part of the taxable estate.	Assets are removed from the taxable estate, reducing estate tax liability.
Privacy	Yes-avoids public probate records.	Yes-offers privacy and asset protection.
Flexibility	High-assets can be added or removed, and beneficiaries can be changed.	Low-assets and terms are locked in after creation.

Why Choose a Trust Over a Will for Estate Planning?

Both revocable and irrevocable trusts offer significant advantages over a will when it comes to avoiding probate and protecting assets. Here are a few key reasons why many people choose a trust over a will:

1. Avoiding Probate Delays and Costs

Wills must go through probate, which can take months or even years to finalize.
Trusts bypass probate, ensuring beneficiaries receive assets quickly and privately.

2. Privacy Benefits

Probate is a public process, meaning anyone can access records of what assets were distributed and to whom.
Trusts are private, keeping financial matters confidential.

3. Managing Assets for Beneficiaries

Trusts allow for control over how and when beneficiaries receive assets. This is particularly useful for minor children, individuals with disabilities, or beneficiaries who may not be financially responsible.
A spendthrift trust can protect an heir's inheritance from poor financial decisions or creditors.

4. Protection from Legal Challenges

Wills can be contested in probate court, potentially delaying the distribution of assets.
Trusts are harder to challenge, making them a more secure estate planning tool.

How to Help Ensure Your Trust Avoids Probate

Even though trusts are designed to avoid probate, there are common mistakes that can lead to probate involvement. To ensure your trust functions as intended, consider the following:

1. Properly Fund the Trust

One of the most common mistakes is failing to transfer assets into the trust. For a trust to be effective, assets such as:

Real estate (homes, rental properties)
Bank accounts
Investment accounts
Life insurance policies (if applicable)
Business interests

must be retitled in the name of the trust.

2. Regularly Update Beneficiaries and Assets

Life changes, such as marriage, divorce, births, or deaths, may necessitate updates to your trust. A revocable trust allows for easy updates, while an irrevocable trust may require legal intervention.

3. Use a Pour-Over Will as a Backup

A pour-over will ensures that any assets not transferred to the trust during the grantor's lifetime are moved into the trust after death. However, these assets will still have to go through probate first.

4. Work with an Experienced Attorney

A knowledgeable estate planning attorney can help structure your trust properly, ensuring that assets are protected, probate is avoided, and beneficiaries are cared for according to your wishes.

If you have questions about setting up a revocable or irrevocable trust, call 414-253-8500 or contact us online.

Contact an Estate Planning Attorney Today

Choosing between a revocable and irrevocable trust is a critical decision in estate planning. While both trusts can help avoid probate, an irrevocable trust offers the strongest protection from probate, creditors, and estate taxes. However, it comes with reduced flexibility compared to a revocable trust.

If you want to ensure your estate is properly planned and your loved ones avoid unnecessary probate delays, consult an estate planning attorney today. Call 414-253-8500 or contact us here to schedule a consultation.

Frequently Asked Questions (FAQs)

1. What happens if a revocable trust is not funded properly before death?

If a revocable trust is not properly funded-meaning certain assets remain outside the trust-those assets may have to go through probate before they can be transferred to the trust or distributed to beneficiaries. This can delay the estate settlement process and lead to unnecessary costs. A pour-over will can help by directing these assets into the trust after probate.

2. Can an irrevocable trust be changed if circumstances change?

Generally, an irrevocable trust cannot be changed once it is established. However, in certain situations, modifications may be possible through court approval or beneficiary consent. Some states allow trust decanting, which lets an irrevocable trust be modified under specific legal guidelines.

3. Do all assets in a revocable trust avoid probate?

Assets properly transferred into a revocable trust typically avoid probate. However, any assets left outside the trust-such as real estate, bank accounts, or investments not retitled in the trust's name-may still require probate. It's essential to regularly review and update trust funding to ensure all assets are properly included.

4. Are irrevocable trusts subject to estate taxes?

Assets placed in an irrevocable trust are removed from the grantor's taxable estate, which can help reduce or eliminate estate taxes, depending on the size of the estate and applicable tax laws. However, tax consequences vary based on the trust structure, so consulting an estate planning attorney is advisable.

5. Can creditors access assets in a revocable or irrevocable trust?

Revocable Trust: Creditors can access assets because the grantor retains control over the trust during their lifetime.
Irrevocable Trust: Assets in an irrevocable trust are generally protected from creditors because the grantor has relinquished ownership. However, protections vary based on state laws and the type of trust.