Is an Irrevocable Trust for you?

What Is an Irrevocable Trust?

An irrevocable trust is, as the name suggests, unchangeable. Once the grantor sets up the trust, it cannot be modified.

After transferring ownership or funding the trust, only a beneficiary can suggest and approve any amendments. Control over those assets is relinquished.

Any changes require the beneficiaries' signatures.

Revocable trusts are more prevalent, permitting the grantor to retain all rights, make adjustments, or even terminate the trust.

Types of Irrevocable Trusts

1. Irrevocable Life Insurance Trust

This trust is designated as the beneficiary of your life insurance policy.

After your death, the proceeds are directed into the trust, where a trustee manages them for your beneficiaries. An irrevocable life insurance trust can help avoid estate taxes on substantial insurance payouts.

2. Irrevocable Marital Trust

A bypass or marital trust transfers assets to the surviving spouse when the first spouse dies. A trustee oversees these assets, keeping them out of the estate.

The surviving spouse can receive income from the trust and, if permitted by the grantor, access the principal. Upon the surviving spouse's death, remaining assets may pass to beneficiaries without incurring estate tax.

3. Irrevocable Charitable Trust

There are two types: a charitable lead trust and a charitable remainder trust. The former provides assets to charities, with the remainder going to beneficiaries.

The latter allows you to receive income from your assets for a specified period, with the remaining assets or income going to a selected charity.

When Is an Irrevocable Trust a Good Idea?

Simply put, an irrevocable trust can help lower your tax liability.

By transferring ownership of certain assets to the trust, you are no longer liable for estate tax.

An irrevocable trust can also shield your estate from creditors. If you pass away with debt and your assets aren't in a trust, they might be sold to settle your debts. Revocable trusts don't offer this protection since the assets remain under the owner's name.

An irrevocable trust can be beneficial for transferring your estate to your heirs.