For example, AB, bypass, or Qualified Terminal Interest Property (QTIP) trusts are used by spouses to delay taxes until the second spouse dies. Several types of irrevocable living trusts are specifically designed to avoid or reduce state and federal estate taxes. Irrevocable trusts can also protect and preserve property that might otherwise be lost to creditors. Irrevocable Trust Advantagesīecause assets placed in an irrevocable trust are no longer the property of the grantor, an irrevocable trust can, for example, allow the grantor to overcome the Medicaid income requirement. The grantor may also not change beneficiaries, modify any of the terms of the trust, or revoke it. Once the ownership of an asset is transferred to the trust, the grantor may not remove it from the trust. With an irrevocable trust, the grantor gives up control of the trust and its assets.
With a revocable trust, the grantor retains full control of the assets placed in the trust, may remove them from the trust, change the beneficiaries, and cancel or revoke the trust entirely. Irrevocable TrustĪ trust may be either revocable or irrevocable. This framework also allows the grantor to place conditions on distributions, such as allowing minors access to the funds only after a certain age or milestone or for a particular period of time, in a "spendthrift trust." Revocable Trust vs. Upon the grantor's death, the trust assets are distributed to beneficiaries according to the terms of the trust as devised by the grantor. At this point, the grantor relinquishes control of the assets, which become registered or titled in the name of the trust.
The grantor funds the trust by placing assets in it. The people or organizations for whom the trust is created are beneficiaries. The person who creates a trust is called the grantor, and the person who manages the trust is called the trustee, who may also be the grantor. You may also use irrevocable trusts for specific reasons, such as using a special needs trust to provide for disabled beneficiaries. Meeting income threshold requirements for certain government benefits.Irrevocable trusts have several potential advantages, including: Some people choose to create irrevocable trusts to reduce taxes and protect assets, including from creditors or other claims after the death of the trust's creator. An irrevocable trust is a type of legal arrangement that cannot be terminated and the terms of which cannot be changed unless the named beneficiary or beneficiaries agree.