The Purpose of an Irrevocable Living Trust

Video Transcript

"So what's an irrevocable trust? An irrevocable trust first of all are very rare. Most people, most trusts, in fact, ninety eight percent of the trusts that are out there, are revocable trusts. Revocable living trusts. You can change them. Frankly you're going to want to change them. Irrevocable trusts are kind of what we call special agents. They just have one or may two jobs to do and that's it. They're rare first of all because they're irrevocable. Most people don't want something that's irrevocable, which means it's unchangeable. You might be able to tweak it a little bit later, but for the most part, one and done, you set this up, you can't change it. Some common irrevocable trusts, perhaps the most common irrevocable trust is called an irrevocable life insurance trust. It allows somebody to take a life insurance policy, put it into the trust, and keep the IRS from ever taxing the death benefit of that life insurance. Without an irrevocable life insurance trust, death benefits of life insurance are fully taxable for estate tax purposes. Another common irrevocable trust would be a charitable trust. Most charitable trusts that are established are set up to allow people to give money to charity, maybe get some living tax benefits, but they're irrevocable. Once you set that thing up, you probably aren't going to be able to change very much of it at all, you better know what you're doing as you go in. Sometimes we set up irrevocable trusts for our clients children. Clients want to give their kids money, but they don't want their kids taking the money and going to Las Vegas with the money, buying a third car with the money, giving the money to the dreaded son-in-law or daughter-in-law. So we give the money to the kids in a special irrevocable trust. The money is available to their child. The money can be spent maybe by their child, but the money won't go anyplace other than where mom and dad want the money to go when that child dies."