# Irrevocable Trusts Explained: How They Work, Types, and Uses

> **Definition**
>
> An irrevocable trust can't be changed or cancelled unless its beneficiary or a court allows it.

## What Is an Irrevocable Trust?

The purpose of an irrevocable trust is to move [assets](https://www.investopedia.com/terms/a/asset.asp) from the [grantor's](https://www.investopedia.com/terms/g/grantor.asp) control and name to that of the [beneficiary](https://www.investopedia.com/terms/b/beneficiary.asp). This protects the assets from [creditors](https://www.investopedia.com/terms/c/creditor.asp) and reduces the value of the grantor's estate, which lowers [estate taxes](https://www.investopedia.com/articles/personal-finance/120715/estate-taxes-who-pays-what-and-how-much.asp).

Irrevocable trusts can't be modified, amended, or terminated without the permission of the grantor's beneficiary or by the order of a court. The exact rules can vary by state.  

### Key Takeaways

*   Irrevocable trusts remove assets from your taxable estate by transferring ownership to the trust, which may reduce estate taxes and shield assets from creditors. 
*   Once created, the terms are immutable—you can’t change or cancel the trust without the beneficiaries’ consent or a court order. 
*   The grantor relinquishes control—legal ownership passes to the trustee, and the grantor cannot access trust assets or manage them directly. 
*   Common purposes include estate planning, Medicaid eligibility, and asset protection, including safeguarding wealth from potential lawsuits or creditor claims. 
*   Various forms exist, such as living (inter vivos) and testamentary irrevocable trusts, each serving unique goals—from tax-saving strategies (e.g., ILITs, GRATs) to supporting beneficiaries with special needs.  
    

![Irrevocable Trust](https://www.investopedia.com/thmb/gM-5PGSwlBj_gtEN-D1diy55dW0=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/TermDefinitions_Irrevocabletrust-4dab1d345f7d4d938fdb38a44ec3ea61.jpg)

*— Investopedia / Mira Norian*

## How an Irrevocable Trust Works

Irrevocable trusts are generally set up to minimize estate taxes, access government benefits, and protect assets. This is in contrast to a [revocable trust](https://www.investopedia.com/terms/r/revocabletrust.asp). With a revocable trust, the grantor can modify or cancel the trust. However, there is no creditor protection.

With an irrevocable trust, the grantor transfers ownership of the assets to the trust, legally removing all [incidents of ownership](https://www.investopedia.com/terms/i/incidentsofownership.asp). This removes the trust's assets from the grantor's [taxable estate](https://www.investopedia.com/terms/t/taxableestate.asp). It also relieves the grantor of the tax liability on the income generated by the assets. While the tax rules vary between jurisdictions, the grantor can't receive these benefits if they are the [trustee](https://www.investopedia.com/terms/t/trustee.asp) (the person with a [fiduciary duty](https://www.investopedia.com/ask/answers/042915/what-are-some-examples-fiduciary-duty.asp) to hold the assets in trust for the beneficiary).

> **Fast Fact**
>
> The assets held in the trust can include (but are not limited to) a business, investment assets, cash, and life insurance policies.

Irrevocable trusts benefit individuals who work in professions that may make them vulnerable to lawsuits, such as doctors or attorneys. Once an asset is transferred to such a trust, it is owned by the trust to benefit its beneficiaries. Therefore, it is safe from legal judgments and [creditors](https://www.investopedia.com/terms/c/creditor.asp) since the trust will not be a party to any lawsuit.

Today’s irrevocable trusts include many provisions not commonly found in older versions of these instruments. These additions allow for much greater flexibility in trust management and asset distribution. Provisions such as decanting, which allow a trust to be moved into a newer trust with more modern or advantageous provisions, can ensure that the trust assets will be managed effectively. Other features that allow the trust to change its state of domicile can provide additional tax savings or other benefits.

## Types of Irrevocable Trusts

Irrevocable trusts come in two forms: living trusts and testamentary trusts.

A [living trust](https://www.investopedia.com/terms/l/living-trust.asp), which is also known as an _inter vivos_ (Latin for "between the living") trust, is originated and funded by an individual during their lifetime. Examples of living trusts include the following.

*   [Irrevocable life insurance trust (ILIT)](https://www.investopedia.com/articles/personal-finance/092315/7-reasons-own-life-insurance-irrevocable-trust.asp)
*   [Grantor-retained annuity trust (GRAT)](https://www.investopedia.com/terms/g/grat.asp), spousal lifetime access trust (SLAT), and [qualified personal residence trust (QPRT)](https://www.investopedia.com/terms/q/qualified-personal-residence-trust.asp) (all types of lifetime gifting trusts)
*   [Charitable remainder trust](https://www.investopedia.com/terms/c/charitableremaindertrust.asp) and [charitable lead trust](https://www.investopedia.com/terms/c/charitableleadtrust.asp) (both forms of charitable trusts)

[Testamentary trusts](https://www.investopedia.com/terms/t/testamentarytrust.asp), on the other hand, are irrevocable by design. That's because they are created after the death of their creator and are funded from the deceased's estate according to the terms of their [will](https://www.investopedia.com/articles/pf/08/what-is-a-will.asp).

> **Important**
>
> The sole way to make changes to a testamentary trust or cancel it is to alter the will of the trust's creator before they die.

## Irrevocable Trust Uses

Irrevocable trusts have many applications in planning for the preservation and distribution of an estate, including:

*   To take advantage of the [estate tax](https://www.investopedia.com/terms/e/estatetax.asp) exemption and remove taxable assets from the estate. Property transferred to an irrevocable living trust does not count toward the gross value of an estate. Such trusts can be especially helpful in reducing the tax liability of very large estates.
*   To prevent beneficiaries from misusing assets. (The grantor can set conditions for distribution.)
*   To gift assets to the estate while still retaining the income from the assets.
*   To remove [appreciable assets](https://www.investopedia.com/terms/a/appreciation.asp) from the estate while still providing beneficiaries with a [step-up basis](https://www.investopedia.com/terms/s/stepupinbasis.asp) in valuing the assets for tax purposes.
*   To gift a [principal residence](https://www.investopedia.com/terms/p/principalresidence.asp) to children under more favorable tax rules.
*   To house a [life insurance policy](https://www.investopedia.com/terms/l/lifeinsurance.asp) that would effectively remove the death proceeds from the estate.
*   To deplete one's property to ensure eligibility for government benefits, such as Social Security income and Medicaid (for nursing home care). Such trusts can also be used to help secure benefits and care for a special needs child by preventing disqualification of eligibility.  
    

## Irrevocable Trusts vs. Revocable Trusts

Revocable trusts may be amended or canceled at any time as long as their creator is mentally competent. They do offer the benefit of allowing their creator to cancel them and reclaim [property](https://www.investopedia.com/terms/p/property.asp) held by the trust at any time before death. However, such trusts do not offer the same [protection against legal action](https://www.investopedia.com/articles/investing/121015/real-estate-trust-or-llc-helping-landlords-choose.asp) or estate taxes as irrevocable trusts.

When using revocable trusts, government entities will consider that any property held in one still belongs to the trust's creator and therefore may be included in their estate for tax purposes or when qualifying for government benefits. Once a revocable trust's creator dies, the trust becomes irrevocable.

## SECURE Act Rules

The [Setting Every Community Up for Retirement Enhancement (SECURE) Act](https://www.investopedia.com/secure-act-4688468) changes some of the tax-saving benefits of [see-through trusts](https://www.investopedia.com/terms/s/seethrough-trust.asp).

Previously, particular non-spousal beneficiaries of retirement accounts that had been placed in an irrevocable trust could take their distributions over their [life expectancy](https://www.investopedia.com/terms/l/lifeexpectancy.asp). However, under the SECURE Act rules, some beneficiaries may find they must take a full distribution by the end of the tenth calendar year following the year of the grantor's death.

## How Does an Irrevocable Trust Work?

An irrevocable trust cannot be changed or cancelled without a court order or the beneficiary's permission. Essentially, an irrevocable trust removes certain assets from a grantor’s taxable estate, and these incidents of ownership are transferred to the trust. A grantor may choose this structure to relieve assets in the trust from tax liabilities, along with other benefits, like protection from creditors and lawsuits.

## What Is the Difference Between an Irrevocable and a Revocable Trust?

Whereas irrevocable trusts can't be changed or terminated, revocable trusts can be changed or terminated. And though irrevocable trusts offer protection from creditors and lawsuits, revocable trusts do not.

## Who Controls an Irrevocable Trust?

Under an irrevocable trust, a trustee holds legal ownership of the trust. At the same time, the grantor gives up certain rights to the trust. Once an irrevocable trust is established, the grantor cannot control or change the assets once they have been transferred into the trust unless the beneficiary gives them permission to do so.

## The Bottom Line

Irrevocable trusts can minimize estate taxes and protect assets. There are two different types: living trusts, created and funded by an individual during their lifetime, and testamentary trusts, which are created after the death of their creator according to the terms of their will. Irrevocable trusts are more complex arrangements than revocable trusts and may have current and future tax implications, so it's best to consult a tax or estate attorney if you're contemplating setting one up.  

> **Article Sources**
>
> 1.  Cornell Law School, Legal Information Institute. "[Irrevocable Trust](https://www.law.cornell.edu/wex/irrevocable_trust)."
>     
> 2.  Thomson Reuters Practical Law. "[Expert Q&A on Decanting a Trust](https://content.next.westlaw.com/practical-law/document/Ia7742105f95211e8a5b3e3d9e23d7429/Expert-Q-A-on-Decanting-a-Trust?transitionType=Default&contextData=%28sc.Default%29)."
>     
> 3.  American Bar Association. "[Introduction to Wills](https://www.americanbar.org/groups/real_property_trust_estate/resources/estate-planning/intro-wills/)."
>     
> 4.  Social Security Administration. "[Spotlight on Trusts](https://www.ssa.gov/ssi/spotlights/spot-trusts.htm)."
>     
> 5.  American Council on Aging. "[How Medicaid Planning Trusts Protect Assets and Homes from Estate Recovery](https://www.medicaidplanningassistance.org/asset-protection-trusts/)."
>     
> 6.  American Bar Association. "[Revocable Trusts](https://www.americanbar.org/groups/real_property_trust_estate/resources/estate_planning/revocable_trusts/)."
>     
> 7.  University of Minnesota Extension. "[Trusts: Definitions, Types and Taxation](https://extension.umn.edu/transfer-and-estate-planning/trusts-definitions-types-and-taxation)."
>     
> 8.  Federal Deposit Insurance Corporation. "[Irrevocable Trust Accounts (12 C.F.R. § 330.13)](https://web.archive.org/web/20240302001617/https://www.fdic.gov/resources/deposit-insurance/diguidebankers/irrevocable-trust/index.html)."
>     
> 9.  Internal Revenue Service. "[Retirement Topics - Beneficiary](https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-beneficiary)."