What is an Irrevocable Trust?
Share this postSo You Want an Irrevocable Trust – What is That?
An irrevocable trust is a trust that may not be altered, amended or revoked by the creator of the trust. The reason you may consider creating an irrevocable trust is because all gifts you make to the trust are treated like gifts made to a “third party,” which means the gifts are excluded from your estate for estate tax purposes. This also means any gifts you make to the trust are generally subject to gift tax if the value exceeds the lifetime gift tax exemption discussed in Chapter 4. However, the benefit is that any growth and appreciation of the assets gifted will escape estate taxation at your death.
You can name the beneficiaries of the trust and provide them with protection from the reach of creditors and “predators” (those who would take advantage of them). You can also carve out distribution guidelines stating the rules on how the gifts may be used for the benefit of your beneficiaries.
Although an irrevocable trust may not be amended or altered by the creator of the trust, a Trust Protector, an unrelated independent third party who is not the creator or a beneficiary of the trust, may be given a power to amend the trust for limited purposes. For example, a Trust Protector may be given the power to amend a trust for drafting errors or changes in the tax law, which necessitates a change to continue the trust’s objectives. In this way, there is some flexibility in dealing with future changes in the law and unforeseen circumstances.
Most states allow an irrevocable trust to be amended by court action. Most courts will allow an irrevocable trust to be amended if to do so would further the trust’s intent and purpose, and if all of the beneficiaries of the trust agree to the modification.