Irrevocable Trust

What is an Irrevocable Trust?

An irrevocable trust is a type of trust—often a living trust—that, once established, can't be changed or terminated without the beneficiary's consent or a court order. An irrevocable living trust is a type of estate planning document that allows you to dictate who will manage your assets during your lifetime and who will inherit them after your death.

There are three key roles in an irrevocable trust.

• The grantor: owns the assets and creates the trust.
• The trustee: holds and manages the assets for the beneficiary.
• The beneficiary: receives the assets upon the grantor's death.

Trusts can be revocable or irrevocable. While revocable trusts offer the grantor more flexibility, an irrevocable trust offers more protection. By removing the trust's assets from the grantor's taxable estate, an irrevocable trust can help shield those assets from creditors and offer more tax benefits.

For a closer look, read this article on irrevocable trusts and their unique benefits.

FAQs 

How much does it cost to set up an irrevocable trust?

The cost of an irrevocable trust can be anywhere from a few hundred to a few thousand dollars, depending on how complex your estate is, as well as attorney rates, if you choose to seek professional legal advice.

Due to the significance of this document, it is wise to work with an estate planning attorney or a legal service like LegalZoom.

What are the benefits of an irrevocable trust?

By placing assets in an irrevocable trust outside your estate, you can avoid certain estate taxes that otherwise would have applied to your trust. There are also circumstances where lowering the value of your estate can allow you or your loved ones to qualify for government benefits. This can be critical for long term or special-needs care. 

In terms of estate planning, an irrevocable living trust can't fully replace a will, but it can help the assets that you place in it avoid probate court.

What are other types of irrevocable trusts?

The following are a few other types of irrevocable trusts.

• Charitable trust: allows the grantor to manage and protect assets for charitable purposes.
• Grantor trust: allows the grantor to remain in control of the trust for a specified period of time. When the term ends, any assets left over go to the beneficiary.
• Qualified personal residence trust (QPRT): allows the grantor to live rent-free for a specified period of time in a home that has been transferred into a trust. When the QPRT ends, the designated beneficiary receives ownership of the home.
• Life insurance trust: owns a life insurance policy on the grantor. The trustee will transfer the policy proceeds from the life insurance trust to the beneficiary upon the death of the insured.

Does an irrevocable trust have tax benefits?

Yes, irrevocable trusts may relieve some assets in the trust from tax liabilities—such as estate taxes—that would have otherwise applied. However, you’ll still need to pay income taxes on the assets in the trust each year.