What is an Irrevocable trust?
An irrevocable trust is a legal arrangement where a person (the grantor or settlor) transfers their assets into a trust, relinquishing ownership and control over those assets permanently. Unlike a revocable trust (also known as an intervivos or living trust), an irrevocable trust generally cannot be modified, amended, or revoked by the grantor once it is established, except in rare circumstances and with court approval.
Once the assets are transferred into the irrevocable trust, they are no longer considered part of the grantor's estate. The trust becomes a separate legal entity, managed and administered by a trustee on behalf of the beneficiaries named in the trust document.
The primary characteristics of an irrevocable trust are:
Loss of Control: The grantor gives up control and ownership of the assets placed in the trust. This means they cannot unilaterally change the terms of the trust or reclaim the assets.
Tax and Creditor Protection: Assets transferred into an irrevocable trust are typically shielded from estate taxes and can also provide protection from creditors, as they are no longer considered part of the grantor's personal assets.
Estate Planning: Irrevocable trusts are often used for estate planning purposes to help reduce estate taxes, protect assets, and control the distribution of wealth. These trusts can also provide for the ongoing management of assets, such as for the benefit of minor children or individuals with special needs.
Government Assitance: Irrevocable trusts can shield your assets from Medicaid’s five year “look-back” period when you apply for those benefits to help with long term nursing and medical care.
Permanence: Generally, an irrevocable trust cannot be changed or revoked without the consent of all beneficiaries and, in some cases, a court's approval. This feature ensures that the grantor's intentions remain intact and provides greater certainty for the beneficiaries.
It's important to note that establishing an irrevocable trust requires careful consideration, as it involves permanently transferring assets and giving up control. It is advisable to consult with an experienced attorney specializing in estate planning, trusts, elder law, special needs, and probate to understand the legal and financial implications before creating an irrevocable trust.
