An irrevocable trust is one that, by definition and design, cannot be revoked or modified except under certain circumstances. The property held by the trust is used for the benefit of specified beneficiaries and the grantor has given up all right, title, and interest in and control over the assets held in the irrevocable trust.
Since trust instruments can be drafted in different ways for a variety of reasons, numerous types of trusts fall into this category. However, irrevocable trusts are created in two ways:
Inter Vivos Irrevocable Trusts: This type of irrevocable trust is created and funded by an individual during his or her lifetime. These would include irrevocable life insurance trusts, dynasty trusts, qualified personal residence trusts (QPRT), grantor retained annuity trusts (GRAT), Special Needs Trusts and charitable trusts such as charitable remainder trusts and charitable lead trusts.
Testamentary Trusts: All testamentary trusts are irrevocable because they're not created and funded until after their grantor's death. The terms of the trust are set forth in the decedent’s estate planning documents (typically a Will or Revocable Trust).
When a grantor transfers assets to an irrevocable trust with property during his or her lifetime and has given up all rights and control over those assets, a gift has been made to the trust. Depending on the size of the gift, the grantor may have gift tax and/or generation-skipping transfer tax consequences as a result of the transfer.
If the grantor is making a taxable transfer to an irrevocable trust (taxable means any amounts over and above the amount of the annual exclusion, which is $15,000 in 2018 ($30,000 for married couples, who can elect gift-splitting) a Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, would need to be filed to report the gifts. If the trust beneficiary is a skip person (your grandchild, a more remote descendant), you would also document it using the generation-skipping part of Form 709.
An individual may completely shield an asset from the claims of creditors and remove assets from their taxable estate by placing an asset in an Irrevocable Trust (usually for the benefit of a spouse and children). Under limited circumstances, you can create a trust to shield assets from your own creditors using either Domestic or Foreign Asset Protection Trusts. Usually, the trust agreement will contain a provision known as a "spendthrift clause" that provides protection from attachment of trust assets by creditors of the trust beneficiary under certain circumstances.
Contact Morris Law Group to assist you in setting up an Irrevocable Trust that will meet your unique wealth preservation goals.