Posted by Daniel P Vigilante CPA and Profit Consultants

What Is an Irrevocable Trust?

What Is an Irrevocable Trust?

An irrevocable lifetime trust can offer benefits that are not available with a revocable trust. This article touched on how an irrevocable trust can protect property from creditors, avoid taxes, and preserve property if Medicaid or other govt benefits become alluring.

An irrevocable trust is a kind of legal institution that cannot be terminated. The condition of which cannot be changed without the beneficiary (ies) agreeing. Some people create irrevocable trusts with the mindset of protecting their assets and reducing taxes, including creditors or other receivables, after the death of the creator of the trust.

Irrevocable trusts have several potential advantages, including:

  • Observes income limit requirements for certain government benefits.

  • Protects the assets of creditors

  • Provides a tax shield

You can also use irrevocable trusts for specific reasons, such as using a special needs trust to satisfy disabled beneficiaries.

How an irrevocable trust works

The creator of a trust is called the settlor, and the person who manages the trust is called the administrator, who can also be the settlor. The beneficiaries are the people or organizations for which the fund was created.

The settlor finances the trust by placing the assets. At this point, the settlor transfers control of the assets, which are titled or registered in the name of the trust.

On the death of the settlor, the trust assets are distributed to the beneficiaries according to the terms of the trust, as determined by the settlor. This structure also allows the grantor to impose conditions on distributions, such as allowing minors to access funds only after a certain age or stage or for a certain period in a "spendthrift trust."

Revocable trust versus irrevocable trust

A trust can be revocable or irrevocable. With a revocable trust, the settlor retains full control over the assets deposited in the trust, can withdraw them from the trust, change the beneficiary, and cancel or revoke the trust altogether.

With an irrevocable trust, the settlor relinquishes control of the trust and its assets.

Once ownership of an asset is transferred to the trust, the settlor cannot remove it from the trust. Also, the settlor cannot change the beneficiaries, modify the conditions of the trust, or revoke it.

The benefits of an irrevocable trust

Since the settlor no longer holds assets deposited in an irrevocable trust, an irrevocable trust may, for example, allow the settlor to exceed the Medicaid income requirement. Irrevocable trusts can protect and preserve property that creditors may lose.

Different types of irrevocable lifetime trusts are specifically designed to avoid or reduce state and federal property taxes. For example, a qualified terminal derivative interest property (QTIP) to delay taxes until the death of the second spouse. Generation-skipping Trusts offer similar benefits (subject to Generation-skipping tax) in back taxes until the grandchild's death (instead of the grantor's son).

Other irrevocable funds that offer potential tax benefits are:

  • Charitable Trust: With a charity as the beneficiary, the settlor chooses a person who receives income during their lifetime. With that person's death, the trust property automatically goes to the charity.

  • Grantor-retained income trust: This trust allows the settlor to receive income from the trust property for a specified period. However, to be effectively late, the grantor must live beyond the specified period.

  • Life insurance trust: This trust has a life insurance policy in the name of the settlor. Since the proceeds from the policies do not go to the lender's assets, they are not taxable. This trust must exist at least three years before the death of the settlor. If a previous owner's policy is transferred to the trust, the administrator cannot be the former owner of the policy.

  • Qualified personal residence trust: The grantor transfers the title of his/her home to the trust but reserves the right to live in the house without paying rent for a specified time. At the end of the period of time, the home passes to the designated beneficiaries.

An irrevocable living trust can benefit both the rich and the poor. As the creation of irrevocable trusts can have serious and lasting consequences for you throughout your life and also for your assets, you should seek professional advice if you wish to establish an irrevocable trust.


  • An irrevocable trust is a type of trust whose terms cannot be changed, modified, or terminated without the beneficiary's authorization (ies) designated by the settlor.

  • Irrevocable trusts cannot be modified once they have been created or are very difficult to change.

  • Irrevocable trusts offer tax protection benefits that revocable trusts do not.

  • Having effectively transferred all ownership of the assets to the trust, the grantor legally removes all ownership of the assets and the trust.



Daniel P Vigilante CPA and Profit Consultants
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