What is an Irrevocable Trust?
True to its name, an irrevocable trust is plain and simple: Irrevocable. The person who creates the trust (the grantor) is not able to make changes to it after it is formed.
Only a beneficiary can make and approve changes to it once it’s been created. Once you transfer ownership into the trust, you don’t have control over those assets anymore. Alternatively, with a revocable living trust the grantor retains all rights to amend or even terminate the trust.
Revocable living trusts are far more common, since they give the creator more control. However, there may be certain instances when an irrevocable trust is better for you.
What Are Some Benefits of an Irrevocable Trust?
Becoming Eligible for Government Programs:
Disabled beneficiaries on Medicaid and Supplemental Security Income often face strict income and asset limitations — i.e., if they own or receive too much money they can lose these valuable government benefits. Irrevocable trusts can help shelter income and assets, so these limits are not exceeded. The Trustee of these trusts can never be the Creator though. The Beneficiary has been divested of substantial control over the trust, so the government benefits continue to be provided, since the trust funds are not included as part of the Beneficiary’s own assets and income.
Protecting Your Assets.
Protecting your assets from creditors typically requires a trust to be irrevocable, and the Trustee and Beneficiary must be unrelated parties or have limited power over trust funds. These are commonly referred to as “asset protection trusts” and are usually only created in states that have favorable trust laws, such as Delaware, Nevada and North Dakota. For people in professions or industries who frequently face lawsuits these protections can be incredibly meaningful.