Irrevocable Trust
An irrevocable trust is a legal arrangement where the grantor permanently transfers assets out of their estate into a trust that generally cannot be modified, amended, or terminated, providing potential estate tax benefits and asset protection.
Exam Tip
Irrevocable trust = NO control but provides asset protection + estate tax benefits. Know ILIT, GRAT, QPRT, and QTIP for the exam.
What is an Irrevocable Trust?
An irrevocable trust is an estate planning tool where the grantor permanently transfers assets out of their ownership and into the trust. Unlike a revocable trust, once assets are placed in an irrevocable trust, the grantor typically cannot change, modify, or revoke the trust without the consent of the beneficiaries or a court order.
Because you relinquish control over the assets, irrevocable trusts offer significant benefits that revocable trusts cannot provide: estate tax reduction, asset protection from creditors, and potential Medicaid eligibility planning.
Key Features
| Feature | Description |
|---|---|
| Permanence | Generally cannot be changed once created |
| Estate Tax Benefits | Removes assets from taxable estate |
| Asset Protection | Protected from grantor's creditors |
| Medicaid Planning | May help preserve assets for eligibility |
| Separate Tax Entity | Trust files its own tax return |
Types of Irrevocable Trusts
| Trust Type | Primary Purpose |
|---|---|
| Irrevocable Life Insurance Trust (ILIT) | Remove life insurance from estate |
| Qualified Personal Residence Trust (QPRT) | Transfer home at reduced gift tax |
| Grantor Retained Annuity Trust (GRAT) | Transfer appreciating assets tax-efficiently |
| Charitable Remainder Trust (CRT) | Income stream + charitable deduction |
| QTIP Trust | Provide for spouse, control remainder |
| Special Needs Trust | Preserve government benefits |
Estate Tax Implications (2025/2026)
| Year | Estate Tax Exemption | Maximum Rate |
|---|---|---|
| 2025 | $13.99 million per person | 40% |
| 2026 | $15 million per person | 40% |
| Married Couple 2025 | $27.98 million combined | 40% |
| Married Couple 2026 | $30 million combined | 40% |
Note: The One Big Beautiful Bill Act (OBBBA) signed July 4, 2025, made the increased exemption permanent.
Common Misconceptions
- Misconception 1: "Irrevocable trusts are only for the wealthy." Reality: Irrevocable trusts can benefit anyone needing asset protection or Medicaid planning.
- Misconception 2: "I can never access assets in an irrevocable trust." Reality: Depending on trust design, you may receive income distributions.