An irrevocable trust is made by a grantor who creates a trust, also called the trustor, who then transfers money, property or other assets to the trust for the benefit of another, known as the beneficiary. Unlike a revocable trust, in which the grantor can change his mind and take back property previously transferred to the trust, an irrevocable trust cannot be revoked or changed by the grantor.Irrevocable trusts are often made while the grantor is alive. Such trusts are called inter vivos trusts. An irrevocable trust may also be established at death pursuant to a will. A trust established by a last will and testament is called a testamentary trust. See Wills and Trusts.
Reasons for Making an Irrevocable Trust
The reasons for making an irrevocable trust vary, depending on the specific goals of the trustor. Reasons to make an irrevocable trust include:1. To reduce estate taxes or gift taxes.2. To protect assets against creditors claims.3. To reduce income taxes or capital gains taxes on the grantor.4. To maintain control over how trust assets or income will be used upon the death of the grantor.5. To set aside assets to pay funeral and burial expenses.6. To provide income or supplemental financial support for a trust beneficiary.
7. To remove specific property or other assets from the grantorís estate.
Disadvantages of Irrevocable Trusts
Each type of irrevocable trust has its own set of advantages and disadvantages. For example, the advantages and disadvantages of a charitable trust are different than those of a special needs trust. Some of the common disadvantages of irrevocable trusts are:1. If your relationship with a trust beneficiary changes and you no longer wish trust assets to be used for their benefit, you generally cannot change the terms of the trust.
2. If you need the trust assets back for any reason, such as a change in financial circumstances, including unforeseen long term care or medical expenses, you cannot get them back.3. Transfer of property to an irrevocable trust may have tax consequences, such as real estate taxes or gift taxes. The tax liabilities that sometimes result from such transfers may be due and payable immediately.4. Irrevocable trusts are complex legal instruments that are often burdensome to implement and maintain. A grantor must carefully consider whether the benefits of an irrevocable trust outweigh the expense, time, and effort involved in making and administering an irrevocable trust. See Trust Administration.5. An irrevocable trust may not accommodate unforeseen changes that occur in your life in the future. An irrevocable trust usually reduces the flexibility in your estate plan.Despite some disadvantages, establishing an irrevocable trust may be the best option available to accomplish your estate planning objectives.
Types of Irrevocable Trusts
The following is a list of the types of irrevocable trusts commonly used in estate planning:1. Qualified Personal Residence Trust or QPRT
2. Charitable Lead Trust or CLT
3. Charitable Remainder Trust or CRT
4. Irrevocable Life Insurance Trust or ILIT
5. Grantor Retained Annuity Trust or GRAT
6. Irrevocable Funeral Trust 7. Special Needs Trust or Supplemental Needs Trust or SNT
8. Asset Protection Trust
9. Irrevocable Gift Trust or IGT
This is not an exhaustive list of the types of irrevocable trusts. If you are interested in learning more about how a trust may help you accomplish your specific estate planning objectives, consult an attorney licensed in your state. For a detailed overview of specific types of trusts, see more about trusts.