An irrevocable trust can be a powerful estate planning tool. However, it’s not the right choice for everyone.
Unlike a revocable living trust, an irrevocable trust generally can’t be changed or revoked simply because the trust’s creator (grantor) later changed their mind. Therefore, creating such a trust requires careful consideration of your goals, finances and family dynamics.
Revocable versus irrevocable trust
The difference between the two types of trust comes down to flexibility. A revocable trust generally allows the person who created it to retain control and make changes during their lifetime.
A properly structured irrevocable trust limits the grantor’s ability to revoke or change the trust. This doesn’t necessarily mean that an irrevocable trust can never be modified. The law provides mechanisms to modify or terminate certain irrevocable trusts. An irrevocable trust should be viewed as a long-term planning tool rather than something that can easily be undone.
There are situations in which an irrevocable trust may be worth considering. For example:
- You want to protect assets for your beneficiaries: Instead of giving assets directly to beneficiaries, you can establish an irrevocable trust that protects the inheritance from creditors, lawsuits or financial difficulties.
- You have a large estate and are concerned about estate taxes: Illinois is one of the states that imposes an estate tax. If you have substantial assets, an irrevocable trust may be part of your overall estate planning strategy to reduce the portion of the estate subject to estate tax.
- You want to provide for a loved one who needs ongoing support: An irrevocable trust may be appropriate when a beneficiary has special financial or personal needs. Instead of giving them a large inheritance outright, a carefully crafted trust can allow a trustee to manage assets and make distributions according to the trust’s terms.
An irrevocable trust can have long-lasting consequences. Therefore, estate planning guidance is critical if you’re considering one. An experienced professional can review your financial situation and estate planning goals and determine whether an irrevocable trust makes sense as part of your overall estate plan.
