What is an Irrevocable Trust? How it Protects Assets

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An irrevocable trust is an agreement allowing property to be held by one party for the benefit of another, stipulating that that it cannot be readily revoked, altered, or amended. It is commonly used for asset protection and estate planning. A trust is a legal tool that consists of a Settlor who has the trust created, a Trustee who manages the trust and one or more Beneficiaries who receive the benefits of the trust. You will also hear a Settlor also referred to as a Grantor or Trustor. Then next question we answer is about revocable vs. irrevocable trusts, and how they compare.

I have been in the asset protection business for over 25 years, we have over 40,000 clients, and we have established literally thousands of trusts and companies.

Revocable vs. Irrevocable Trusts

A revocable trust, commonly a revocable living trust, is an estate planning tool that a settlor can change at any time.

So, if your needs change you can make amendments freely without the interaction of a third-party.

So, why doesn’t everybody set up a trust that is revocable as opposed to an irrevocable one? It is because the living trust is part of your own estate for tax and asset protection purposes. So, a revocable trust offers little protection from creditors or those who seek to sue you. It also offers no segregation of assets in order to qualify for Medicaid assistance. Plus, upon your death, such a trust is also yours for state and federal estate tax purposes.

Why Irrevocable?

The primary reason people use irrevocable trusts to protect assets from lawsuits. Legal theory commonly allows a creditor to step into the shoes of the debtor. It allows the creditor do what he or she could do. For example, let’s say the settlor of a trust could freely change the beneficiary. … The one who sued the settlor could step into his or her shoes and change the beneficiary to himself. If the trust allowed the settlor to independently spend trust assets on himself, the creditor could do the same.

Plus, some people use irrevocable trusts to make sure that others carry out their wishes when they are no longer around. This is common in second marriages where a spouse wants to make sure that children from the first marriage get at least some of the assets.

So, I Can’t Ever Change It?

It’s not quite like that, as there are often ways to make changes. It depends on how the trust is drafted. But if the purpose is asset protection, the changes often require the approval of a third-party, such as the trustee. Most trusts for this purpose are discretionary trusts.

For example, if you decide to .. cut out.. a beneficiary or add a new one, simply ask the trustee. The trustee, at it’s discretion can do so. The trustee has discretion to decide whether or not the act would be in the best interest of the of the trust. and if doing so would put trust assets in harm’s way.

With most irrevocable trusts, the Settlor(s) or Beneficiary(ies) may request that the Trustee make certain changes. The trustee can generally do so if it does not put trust assets at risk.


To say it another way, if you could change it directly, the judge could force you to change the beneficiary to your legal enemies. So, by making it irrevocable, you are more likely to get what you want: the use of the trust assets.

By requiring third-party intervention, it ties the judge’s hands from directly forcing you to make the changes against your will.

There are many types of irrevocable trust. Not all are for asset protection. There are trust to hold life insurance, for charitable purposes, to reduce the tax bite, and to care for those with special needs.

Allowances for the Unforeseen

Properly drafted trusts allow for wide range of future possibilities. For example, there are circumstances that would warrant a change of beneficiaries or trustees. Perhaps Mom and Dad unexpectedly have another child. One child exhibits evidence of long-term substance abuse. On child has a tragic military accident while the parents are still living. The trustee dies. A well-drafted trust addresses all of these circumstances.

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