What is an irrevocable trust
An irrevocable trust is a type of trust structure that cannot be modified or terminated unless under exceptional circumstances. Once the settlor transfers their assets into the trust deed, all of their rights of ownership to the assets and the trust have been removed and the trust cannot be amended without first obtaining permission from the beneficiary.
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Irrevocable trust explained
An irrevocable trust involves the transfer of assets from one’s own name to an independent trust. An irrevocable trust is the opposite of a revocable trust, as the settlor has no rights or freedom to modify the trust in any way, whereas a revocable trust is a more flexible entity that allows the settlor to maintain full rights over the trust during their lifetime. Generally speaking, an irrevocable trust cannot be amended, modified, changed or revoked, unless under exceptional circumstances. Once an irrevocable trust is created, it is ‘set in stone’ and cannot be tweaked in any way. However there are a number of limited circumstances in which the irrevocable trust can be amended.
An irrevocable trust is usually set up for estate or tax planning purposes and can include a range of assets, such as cash, insurance policies and investment assets. An irrevocable trust is advantageous as it transfers the ownership of the assets from the owner, and therefore relieves the settlor of any tax liabilities. Once the settlor no longer legally own those assets, there s no opportunity for creditors to track the origins of the assets. An irrevocable trust is advantageous as it eliminates estate taxes and can also reduce or defer capital gains and income tax.
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