Posted by Dana Law Group on September 29, 2021
An “irrevocable trust” certainly sounds as though it can’t be altered. And, for the most part, it can’t be. But, like many things with law, there are exceptions. Let’s take a look at irrevocable trusts, when they’re used, and when they can be altered.
An irrevocable trust occurs when assets are placed in a trust account to be doled out to a beneficiary under certain conditions, such as a certain amount every year. With an irrevocable trust, the grantor of the trust no longer controls the assets within the trust. Rather, the trust will be managed by a trustee. An irrevocable trust can be created either before death or after death. Many grantors choose to form an irrevocable trust after their deaths, but they can also choose to create a living trust for charity or for inheritance.
An irrevocable trust reduces the tax burden on the grantor. Because the trust is separately held, the grantor’s estate will no longer be affected by it. Further, the trust’s assets won’t result in taxes for the beneficiary until the beneficiary is actually given the assets.
The other side of this is that the grantor loses control over the irrevocable trust. Many grantors will use irrevocable trusts to grant assets and money to their beneficiaries under specific terms. Meanwhile, the grantor will not have to pay taxes on the irrevocable trust because they don’t have control or ownership over it.
The entire goal of an irrevocable trust is for it to be “irrevocable.” But there is an exception.
If the parties involved in the trust, the trustees and beneficiaries, are willing to alter the trust, then the trust can be altered. An irrevocable trust cannot be altered unilaterally by a given party. Further, there may be specific laws regarding the altering of a trust based on state. So, while you should consider an irrevocable trust essentially irrevocable, there are ways to alter it.
There are always revocable trusts for those who do not want to create a trust that’s irrevocable. The downside of a revocable trust is that the assets are not shielded in the same way as an irrevocable trust. Further, the assets within the trust are still subject to taxes because the grantor is still in direct control of them.
Are you interested in creating an irrevocable trust? Are you wondering whether such a trust can be altered? Nearly every part of the law is situational. You will want to consult with a professional. Talk to the Dana Law Group now for detailed answers about your situation.