Information on Irrevocable Trusts
An irrevocable living trust is a specific type of living trust. An irrevocable living trust can provide significant benefits, but it also requires the person creating the trust to give up control over the trust property. Property that you transfer to an irrevocable trust is no longer owned or controlled by you, and if you want it back, you have to get permission.
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Living Trusts
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A trust is a legal relationship that allows you, the trustor, to split ownership and control of property. When you create a trust, you name a trustee who manages the property that you put into the trust. You also will name beneficiaries who will receive trust income and distributions. A living trust is a trust that you create, and that operates, while you are still alive.
Revocable vs. Irrevocable Trusts
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When you create a trust, you can decide whether it will be revocable or irrevocable. The key difference is whether you have power to terminate the trust whenever you want, or whether you will have to get permission from the trustee, the beneficiaries or a judge. If you give yourself power to terminate unilaterally, then the trust is revocable and you maintain total control. Otherwise, it is irrevocable.
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Trust Benefits
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All trusts, whether revocable or irrevocable, provide some significant benefits. For example, a trust allows your family to avoid probate of whatever property is in your trust rather than in your will. Probate is the often-complicated and expensive legal process where a court reads and applies your will to your property when you die. In addition to helping avoid probate, a trust also provides for the shared ownership of and benefit from income-producing property. Finally, the trust allows you to appoint a professional as trustee, and the professional will probably manage the trust property better than you could do on your own.
Irrevocable Trust Benefits
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An irrevocable trust provides additional benefits, including tax savings and creditor sheltering. First, for tax savings, when you create an irrevocable trust that includes income-producing property, the trust is taxed on the income rather than you personally. This can save taxes overall, because the trust will likely fall into a lower income tax bracket then you personally.
The irrevocable trust also allows you to protect property from creditors. When you transfer property to an irrevocable trust, you completely give up ownership of that property, which means if a creditor obtains a judgment against you, the creditor cannot enforce that judgment against the property in the irrevocable trust. This can protect your assets that would otherwise be subject to the judgment.
Irrevocable Trust Disadvantages
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When you create a revocable trust, you retain control over the property, which essentially means you still own the property. If you ever want the property back, you just terminate the trust and take the property back.
However, if you have an irrevocable trust, you cannot just decide on your own to take back your property. Once your property goes into trust, you can only get it back with the combined consent of the trustee and the beneficiaries, or a court orders the trust dissolved. A trustee can only consent to termination if it is in the best interest of the beneficiaries. Most likely, you won't get the trust terminated even if the trustee is your best friend.
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