An irrevocable trust is as trust that may have been set up as irrevocable, or it may have been a revocable trust that became irrevocable because of a death. In either case, the biggest difference between a revocable trust and an irrevocable trust is that you generally can’t revoke or change an irrevocable trust.
Why might might you want to set up an Irrevocable Trust?
Just because you can’t change or revoke a trust, doesn’t mean there aren’t good reasons to consider setting up an irrevocable trust. The other big difference from a revocable trust, is that an irrevocable trust can reduce estate taxes. So, it is no surprise that the number one reason for setting up an irrevocable trust is for tax purposes. The other main purpose of an irrevocable trust is to protect your property.
Irrevocable Trusts to Reduce Taxes
We can draft several different types of trusts to reduce taxes, including:
- Life Insurance Trusts – Sometimes call an ILIT. An ILIT reduce estate taxes by removing the proceeds of life insurance from your taxable estate.
- Bypass Trusts – Used by spouses to reduce estate taxes when the second spouse dies.
- QTIP Trusts – Used by couples to postpone the payment of estate taxes until the second spouse dies.
- QDOT Trusts – Essentially a QTIP trusts, but used when one spouse is a non-citizen.
- Charitable Trusts – A trust designed to reduce income and estate taxes through gifts to charity.
- charitable remainder trusts – You put property in a trust, you name a charity to be the final beneficiary, and then you name someone else to receive income from the trust for a set amount of time.
- charitable lead trusts — The reverse of a charitable remainder trust. The charity gets the income, and you name the final beneficiary.
Irrevocable Trusts for Protecting Property
Irrevocable trusts can also be used to protect assets from being squandered or to protect the assets of a person with a disability.
- Spendthrift Trusts — Spendthrift trusts allow you to protect the property and assets you want to give to someone who may not be able to manage the money themselves. You put property into a trust, and the trustee decides whether to distribute funds to the beneficiary according to the terms of the trust.
- Special needs trusts — A special needs trusts provides financial support for a person with special needs, without affecting his or her qualifications for government benefits. Read more about Special Needs Trusts here.