Advantages of an Irrevocable Trust

Asset protection is an important benefit of creating irrevocable trusts.

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An individual may create a trust and transfer property into the trust for the benefit of beneficiaries. The person who creates the trust is called the settlor; the settlor designates a trustee, who manages the trust assets according to the terms of the trust. The trust can be irrevocable or revocable. You can terminate or make changes to a revocable trust. However, once an irrevocable trust has been created, the settlor may not modify or revoke the trust.

Avoids Probate

Irrevocable trusts are often used as an estate planning tool to pass along assets to beneficiaries. An irrevocable trust can be used to avoid the expensive and complicated process of probate court. All assets transferred to an irrevocable trust passes outside of probate and goes directly to the beneficiaries of the trust property.

Protection from Creditors

An irrevocable living trust is created during the settlor’s lifetime. When the settlor relinquishes control of the assets, the trust property is shielded from the settlor’s future creditors. However, current creditors at the time of the trust creation may have authority to seize the assets. Aside from this fact, the assets are protected from any creditors that the settlor acquires after the trust is created, if the settlor has no beneficial interest in the trust property.

Beneficiary's Ability to Receive Capital

An irrevocable trust can be created to protect the assets held in the trust and prevent the beneficiary’s creditors from accessing the trust property. However, some states may allow creditors to access the trust funds to settle child support claims, alimony and debts for the necessities. This type of trust is normally called a spendthrift trust. The main purpose of spendthrift trust is to provide for the maintenance of another person. By creating a spendthrift trust, it protects the beneficiary’s authority to receive capital held in the trust without being subjected to claims from future creditors. A spendthrift trust also protects the assets in the trust from the beneficiary’s inability to manage the trust assets properly. The settlor may establish terms, which may place limitations on the beneficiary’s power to transfer his interest in the trust property.

Avoid Estate Tax

Property held in an irrevocable trust is not considered part of the estate during probate administration. The property is not included during the calculation of the estate’s value. Thus, the value of the assets held in the trust is not subject to estate taxes.

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About the Author

Marie Huntington has been a legal and business writer since 2002 with articles appearing on various websites. She also provides travel-related content online and holds a Juris Doctor from Thomas Cooley Law School.

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