How An Irrevocable Trust Can Help Your Estate

If you’ve been looking into doing some estate planning, you’ve likely discovered how useful trusts can be, especially revocable trusts. 

You’ve probably also come across information about irrevocable trusts, and with all of their inflexibility and restrictions, it’s made you wonder why anyone would ever use an irrevocable trust when the revocable trust has so many more advantages.

The revocable trust can offer a lot of benefits. For example, when a trust is revocable, the grantor (also known as the creator) of the trust can change any of its terms. They also have the ability to change the beneficiaries and the trustee. 

Additionally, the grantor can also continue putting assets into the trust and taking them out of the trust. The grantor can even terminate the trust if they want – this is where the “revocable” comes from. 

There are other benefits, too. The revocable trust is a good estate planning tool for helping your heirs avoid probate on your death because it’s the trust that owns the assets in the trust, and not you. Because they don’t have to go through probate, which is a public court procedure, there’s more privacy for everyone involved, too.

Why There's an Inflexibility of Irrevocable Trusts

The irrevocable trust offers none of the flexibility of the revocable trust. Once you create an irrevocable trust, you can’t change any of its terms. For example, you are unable to change the people you’ve designated as the beneficiaries of the trust at a later date.

Whatever assets you decide to transfer into the trust stay in the trust. This means that, unlike with a revocable trust, as the grantor, you won’t have any control over your assets once they go into your irrevocable trust.

“Irrevocable” also means you can’t terminate the trust, either. All these characteristics of the irrevocable trust are what create this inflexibility and make it easy for most people to choose revocable trusts for their estate plans over an irrevocable trust.

Irrevocable Trusts Can Work in the Right Circumstances

There are certain situations where you might want to use an irrevocable trust rather than its more popular cousin. These situations include the following:

• For the purpose of minimizing estate taxes. For some, minimizing estate taxes is an important goal. Just know that there’s a complexity to setting up an effective irrevocable trust in this situation, and you should speak with an attorney who’s experienced in this area.

• For Medicaid purposes. Irrevocable trusts help individuals to retain eligibility for a program like Medicaid. Setting up this trust for this purpose is complex, and you should always consult with an experienced estate planning attorney. We recently had a podcast about Medicaid where our attorney Calley Mize talks a bit more about this. You can find it here!

• To protect your assets against creditors. The irrevocable trust can be a good estate planning vehicle if you’re worried about creditors — either yours or your beneficiaries’ — being granted access to your assets. 

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As a blog exclusive, we also have some free estate planning resources for you! View our life planning guide and our estate planning checklist below to either begin your estate planning or check to be sure you're up-to-date on your documents.

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