As the name implies, an irrevocable trust is a trust that cannot be revoked, modified, amended, or terminated by its creator (the grantor) with very limited and specific exceptions. Once the grantor has transferred an asset into the trust, it removes his/her right of ownership and that asset will no longer be considered the property of the grantor. This is the opposite of a revocable trust which allows the grantor to modify or even terminate the trust at any time for any reason. Also, unlike a revocable trust, it is not recommended that the grantor designate himself as the trustee. An irrevocable trust consists of three components:
- Grantor – who creates the trust and “gifts” the assets
- Trustee – who manages the trust assets
- Beneficiary or beneficiaries – who inherit the assets in the trust
Benefits of an Irrevocable Trust
- Property gifted to an irrevocable trust is no longer part of your estate and does not contribute to the estate’s gross value. The IRS cannot tax these items as part of your estate because you no longer own them. This is beneficial if you have a very large estate that would be subject to the federal estate tax.
- The transfer of assets into an irrevocable trust creates a permanent change of ownership. Property held in the trust will not be subject to probate upon the death of the grantor. This allows the grantor and beneficiaries of the irrevocable trust to avoid both the time and expenses of probate.
- An irrevocable trust protects your assets from creditors and lawsuits so that your assets are preserved for your beneficiaries. For parents of children with substantial debt, an irrevocable trust may provide protection for both you and your heirs.
- Protects assets for special needs children and adults while allowing them to qualify for government benefits such as Medicaid and Supplemental Security Income (SSI).