An irrevocable trust is created during the maker’s lifetime that does not allow the maker to change it. An irrevocable trust can not be changed after they are made. Irrevocable trusts are useful financial tools because there is a set structure that must be executed based on the wishes of the trust maker. An irrevocable trust is a type of trust that, once created, cannot be amended or terminated by the settlor (the person who created the trust).
Why Are Irrevocable Trusts Used?
Many times irrevocable trusts are used to fund legacies for children or grandchildren. Others might use an irrevocable trust to make gifts of property or life insurance. Irrevocable trusts are often used for estate planning purposes, to manage and distribute assets in a way that is intended to reduce taxes and avoid probate.
What Is The Structure Of An Irrevocable Trust?
Every irrevocable trust must have four primary elements:
Grantor or Settlor
The first element is the trust maker – the person who makes the trust. This person can also be
called the “Grantor” or “Settlor.” A Grantor or Settler sets up the trust to follow rules which can not be changed afterward.
The person who manages the trust assets and performs the functions of the trust.
This person is called the “Trustee” and can sometimes be the same person as the trust maker or can be a professional or institutional trustee. When the initial trustee is no longer able to serve as a trustee, another must be elected who is then referred to as the “Successor Trustee.” The trustee must follow the wishes of the grantor in the case of an irrevocable trust.
Beneficiary or Heir
A beneficiary is a person who will receive the benefits of the assets held within the trust. The original beneficiary is sometimes the trust maker, however, in many types of trusts the trust maker is not the beneficiary. After the trust maker is deceased, then the assets will be passed to whoever the grantor designates. Normally the children or family members become the next line of beneficiaries. Of course, if more than one person exists, they are called “Beneficiaries.” A beneficiary or heir must follow the rules of the trust and very frequently will have stipulations or ways in which they can use the assets that are being passed to them. It is frequent that a Settlor will set up a trust and beneficiaries will be required to use a portion of the assets on education or on their children.
The Corpus refers to the assets inside the trust. These assets are called the trust “Corpus.”
How Long Does An Irrevocable Trust Last?
An irrevocable trust is a type of trust that, once created, cannot be amended or terminated by the settlor (the person who created the trust). Irrevocable trusts are often used for estate planning purposes, to manage and distribute assets in a way that is intended to reduce taxes and avoid probate.
The length of time that an irrevocable trust lasts depends on the terms of the trust and the purpose for which it was created. Some irrevocable trusts are designed to continue indefinitely, while others have a specific time period during which they are in effect.
For example, an irrevocable trust could be created to hold assets for the benefit of a minor child until the child reaches a certain age, at which point the trust would terminate and the assets would be distributed to the child. In this case, the trust would last for a specific period of time, until the child reaches the age specified in the trust.
On the other hand, an irrevocable trust could be created to hold assets for the benefit of multiple generations of a family, with the intention that the trust should continue indefinitely. In this case, the trust would last for an indefinite period of time, until the terms of the trust are fulfilled or the trust is otherwise terminated.
It’s important to note that, while the settlor of an irrevocable trust cannot terminate or amend the trust, the terms of the trust can provide for certain circumstances under which the trust can be modified or terminated. For example, the terms of the trust might allow for the appointment of a new trustee, or for the addition or removal of beneficiaries. It’s also possible for the terms of an irrevocable trust to be modified or terminated through the legal process of trust modification or trust termination.
An irrevocable trust has no time limit and will last as long as there are assets left in the trust based on the wishes of the individual who set up the trust.
Does an Irrevocable Trust Pass Through Probate?
No, an irrevocable trust does not pass through the probate process. An irrevocable trust has a clear and designated beneficiary for the assets so there is no need for the probate court to be involved to help with the succession of assets.
What Is The Difference Between An Irrevocable Trust Other Types Of Trusts
An irrevocable trust can not be changed once it is set up and funded. An irrevocable trust is different from a revocable trust because a revocable trust can be amended, added to or revoked during its maker’s competent lifetime. After the maker is deceased, this type of trust is typically converted to irrevocable.
|Irrevocable Trust||Revocable Trust||Testamentary Trust|
|Ability to amend or revoke||Cannot be amended or revoked||Can be amended or revoked||Can be amended or revoked|
|Control over trust assets||Settlor gives up control over trust assets||Settlor retains control over trust assets||Settlor gives up control over trust assets|
|Tax consequences||Can provide tax benefits||Can have tax consequences||Can have tax consequences|
|Purpose||Typically used for estate planning or asset protection||Can be used for a variety of purposes, such as managing assets or providing for a beneficiary||Can be used for a variety of purposes, such as managing assets or providing for a beneficiary|
A revocable trust, also known as a living trust, is a type of trust that can be amended or revoked by the settlor during their lifetime. Revocable trusts are often used to manage assets and provide for a beneficiary during the settlor’s lifetime, and can be a useful tool for estate planning.
A testamentary trust is a type of trust that is created by a will and becomes effective upon the death of the settlor. Testamentary trusts are often used to manage assets and provide for a beneficiary after the settlor’s death, and can be a useful tool for estate planning.
It’s important to note that the differences between irrevocable trusts and other types of trusts can vary depending on the specific terms of the trust and the laws of the state where the trust is created. If you have questions about the differences between different types of trusts, it’s a good idea to consult with an attorney who is familiar with trust law.
What Is The History of Irrevocable Trusts?
Trusts have been around longer than most people realize. The first trust dates back to the Roman Empire in 800 A.D. In that society, only citizens of Rome could own property. When faced with deployment, soldiers would transfer ownership of their property to a trusted friend to make sure their families were cared for. During the Roman occupation of the British Isles, trust became a familiar tool to protect lands from rogue governors and lords. The concept of trust arrived on American soil along with the
Trusts were once regarded only as a tool available to the ultra-wealthy. While this was true for many decades, there has been mass adoption of trusts because they are useful, flexible and powerful estate planning tools. People have discovered that trusts can be useful for almost any socioeconomic class. The irrevocable trust is different from trusts in old societies because once property or assets are transferred into the trust they can not be changed or amended.« Back to Glossary Index