You’ve finally made the decision to create a trust for yourself and your family but you come to a fork in the road: the irrevocable versus the revocable trust. Wait, what?! What’s the difference?

While similar in concept, the differences are both critical and key to making an informed decision about the best device available for your estate planning. Here are some of the major differences between the two devices that can help you determine which type of trust is more suitable to your needs.

1. Ownership of Property

Once assets are placed in an irrevocable trust, the property no longer belongs to the Grantor; it now belongs to the trust. That doesn’t mean you can’t still reside in your home of 30 years, but technically you no longer own it; the trust is now the owner. This is different from a revocable trust, where the Grantor retains completed ownership of the property.

2. Modification

An irrevocable trust agreement generally cannot be changed, amended, modified or revoked even with a court order, thus offering the coveted asset protection, whereas a revocable trust allows the instrument to be modified or revoked at the Grantor’s discretion; this means that the assets in a revocable trust are still available for anyone to take.

3. Estate Taxes

With an irrevocable trust, since the Grantor no longer owns the property, it is not included in calculations of the total value of property at the time of death. With a revocable trust, since the Grantor still owns the property, the value of the property in the trust will be included in the calculation of the total value of property at the time of death.

4. Protection of Assets

With an irrevocable trust, since the assets in the trust no longer belong to the Grantor, they are generally protected from creditors or from other claimants. This serves to protect assets from the claims of creditors, Medicaid, and even divorcing spouses. Conversely, with a revocable trust, the assets are not protected; since the Grantor retains full control and power over the assets, he is still liable for legal claims against the assets.

5. Appointment of Trustee

With an irrevocable trust, the Trustee generally is, and should be, an independent person chosen by the Grantor in order to create a fiduciary duty to protect the assets — family members acting as a Trustee usually do not offer this benefit. With a revocable trust, the Grantor often also serves as the Trustee, maintaining control over the assets in the trust.

6. Income Tax Return

With an irrevocable trust, generally, the trust has its own tax identification number (EIN), files a 1041, and then either pays the tax itself (not typical) or issues a K-1 to the Grantor (or the Beneficiaries if Grantor is deceased) for income that flows through to the recipient’s 1040 return through Schedule E. With a revocable trust, there is no such discrepancy; the taxpayer files everything on their 1040 as if they personally owned the assets that generated income — because they do own the assets.

As with all estate planning, the laws can change, so a consultation with an expert is advised before determining which device is more appropriate for your situation.