Irrevocable Trusts in Colorado: What They Are and When You Need One

Most people who come into our office asking about trusts have a revocable living trust in mind, the kind you control, can change, and can revoke any time you like. That type of trust is the workhorse of most Colorado estate plans, and for most families it covers everything that needs to be covered. If you are still working through the basics, our post on what a living trust is and whether you need one in Colorado is a good starting point.

But there is another category of trust that comes up in specific situations, and it works very differently. An irrevocable trust, once created, generally cannot be undone or significantly changed. In exchange for giving up that control, you gain something a revocable trust cannot offer: the assets inside are typically no longer considered yours for purposes of creditor claims, Medicaid eligibility, and in some cases estate tax calculation .

Whether an irrevocable trust belongs in your estate plan depends entirely on your situation. This post explains what these trusts are, how they compare to revocable trusts, what the main types are used for, and when an irrevocable trust is worth the trade-off of reduced control.

What Is an Irrevocable Trust?

An irrevocable trust is a legal arrangement in which you transfer assets to a trustee and give up ownership and control of those assets. Unlike a revocable living trust, where you typically serve as your own trustee and can change the terms at any time, an irrevocable trust locks in its terms at creation. Once funded, the assets belong to the trust, not to you.

In Colorado, irrevocable trusts are governed by the Colorado Uniform Trust Code (C.R.S. § 15-5-101 et seq.). The law does allow some modifications under specific circumstances, including through a court if all beneficiaries consent, through a trust protector if the trust document includes one, or through a process called decanting, where a trustee moves assets into a new trust with updated terms. These are the exception, not the rule, and you should go into an irrevocable trust assuming its terms are permanent.

The person who creates the trust is called the grantor or settlor. The trustee manages the trust assets and follows the terms of the document. The beneficiaries receive distributions according to the terms you set at creation.

What Is the Difference Between a Revocable and Irrevocable Trust in Colorado?

The core difference is control. With a revocable trust, you keep it. With an irrevocable trust, you give it up, and that trade-off is precisely where the planning value comes from. For a full comparison of how these tools fit into an estate plan, our trust vs. will guide for Colorado covers the broader picture.

Here is how the two compare across the issues that matter most:

Control: A revocable trust lets you serve as your own trustee, make changes freely, and dissolve the trust entirely if you change your mind. An irrevocable trust requires you to name someone else as trustee and removes your ability to take the assets back or alter the terms without going through a specific legal process.

Asset protection: A revocable trust offers no protection from your creditors because the assets are still legally considered yours. An irrevocable trust, properly structured, places assets outside the reach of future creditors because you have given up ownership.

Medicaid eligibility: Colorado’s Medicaid program, administered by the Colorado Department of Health Care Policy and Financing, considers revocable trust assets available to you when determining eligibility for long-term care assistance. Assets in a properly structured irrevocable Medicaid trust are generally not counted after a five-year look-back period has passed.

Estate taxes: Colorado has no state-specific estate tax, so this factor matters primarily for larger estates subject to federal estate tax. As of 2026, the federal estate tax exemption is currently $15 million per individual citizen (very different limits for non-citizen residents), though that threshold is always subject to change. Irrevocable trusts can be structured to move assets out of your taxable estate.

Probate avoidance: Both revocable and irrevocable trusts avoid probate on assets held inside them. This is not a distinguishing factor between the two.

The Most Common Types of Irrevocable Trusts and Who They Are For

Not all irrevocable trusts serve the same purpose. The type used for Medicaid planning is completely different from the type used for life insurance proceeds. Here are the most common varieties and when they come up in practice.

Irrevocable Life Insurance Trust (ILIT)

An ILIT holds a life insurance policy outside your estate. When you die, the policy proceeds pay into the trust rather than directly to your estate, and because the policy is owned by the trust, the proceeds are generally not included in your taxable estate for federal estate tax purposes. The trust then distributes to your beneficiaries according to the terms you set.

This structure is most useful for larger estates that may be subject to federal estate tax, or for individuals who want life insurance proceeds managed for beneficiaries over time rather than paid out in a lump sum.

Medicaid Asset Protection Trust (MAPT)

A Medicaid asset protection trust is an irrevocable trust designed to hold assets, often a home or investment accounts, outside the count for Medicaid eligibility purposes. Colorado Medicaid applies a five-year look-back period, meaning assets transferred to the trust more than five years before you apply for Medicaid long-term care coverage are generally not counted.

This type of trust is typically used by individuals in their 60s who are planning ahead for the possibility of nursing home care. It is not a last-minute strategy. The five-year rule is strict, and timing matters significantly.

Special Needs Trust (SNT)

A special needs trust holds assets for a beneficiary with a disability without disqualifying them from government benefits like Medicaid and Supplemental Security Income. Leaving money directly to a child or family member who receives these benefits can reduce or eliminate their eligibility. An SNT allows you to leave assets that supplement, rather than replace, those benefits. This is a more technical trust that requires careful drafting to meet both Colorado and federal requirements. Our post on trust planning for families with young children touches on how these fit into a broader family estate plan.

Charitable Remainder Trust and Charitable Lead Trust

These are used for charitable giving combined with estate planning. A charitable remainder trust provides income to you or a beneficiary for a set period of time, and then the remainder goes to charity. A charitable lead trust does the reverse: income goes to charity first, and then the remainder passes to your beneficiaries. Both are more sophisticated planning tools used primarily for high-net-worth estates.

When Does an Irrevocable Trust Make Sense in Colorado?

An irrevocable trust is worth considering when one of the following situations applies to you.

You are concerned about long-term care costs and want to protect your home or savings from Medicaid spend-down requirements, and you have at least five years before you might need care. This is the Medicaid asset protection trust scenario, and starting early is not optional.

You have a life insurance policy large enough that its proceeds would push your estate above the federal estate tax threshold, or you want the proceeds managed for beneficiaries rather than distributed directly.

You have a child, grandchild, or other family member with a disability who receives government benefits, and you want to leave them resources without disrupting that eligibility.

You are a business owner or professional with significant liability exposure who wants to protect personal assets from potential future creditors through a domestic asset protection trust. Colorado enacted legislation allowing these structures, though they carry specific requirements.

If none of these situations apply, a revocable living trust is almost certainly the right tool for your estate plan, and the added complexity of an irrevocable trust is not warranted.

A Note on Colorado’s Tax Landscape

Because Colorado has no state estate tax, many irrevocable trust strategies you might read about elsewhere, specifically those designed to reduce state death taxes, simply do not apply here. Colorado residents pay federal estate tax if their estate exceeds the applicable threshold, but no additional Colorado tax layers on top of that.

This is a meaningful difference from states like Massachusetts (estate tax threshold: $2 million), Oregon (threshold: $1 million), or Washington (threshold: approximately $2.2 million). In those states, irrevocable trusts designed to reduce state estate taxes are common planning tools even for moderate estates. In Colorado, that specific driver does not exist.

What does apply here is the Medicaid planning dimension, asset protection planning, and federal estate tax planning for larger estates. If you are in any of those situations, an irrevocable trust is worth a serious conversation.

What This Means for You

The bottom line is, in most circumstances, revocable trusts fit the estate planning needs of most individuals and families in Colorado. Irrevocable trusts are not for everyone, and they should not be approached casually. Giving up control of assets is a significant decision that deserves a thorough conversation about your goals, your timeline, and your family situation. They are also not the only way to address the concerns they solve. There are other Medicaid planning strategies, asset protection approaches, and estate tax techniques that may or may not involve an irrevocable trust depending on the specifics .

What this type of trust does offer, for the right situation, is a level of protection that a revocable trust simply cannot provide. If you have questions about whether an irrevocable trust belongs in your plan, or whether your current plan is structured to protect what matters most, The Law Office of Kevin R. Hancock is glad to work through that with you. Call or fill out an online form to schedule a consultation.

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