Practical Uses for Irrevocable Trusts
Unlike the revocable living trust, which can be changed or cancelled at any time during your life, most trusts created as part of an estate plan are irrevocable and cannot be changed by the trustee or the beneficiaries.
Your will or revocable living trust can direct that all or part of your estate be held in an irrevocable trust for one or more beneficiaries, rather than being distributed outright to the beneficiaries. For example, you could leave part of your estate to a trust that would pay one beneficiary all income earned by the trust, plus whatever principal he or she needed for support, for his or her life. You may then direct that the trust property be divided equally among other designated beneficiaries at the death of the primary beneficiary.
There are several relatively common situations where an irrevocable trust could be a very practical part of your estate plan:
You want to provide for a beneficiary who is, or at your death may be, infirmed, disabled, inexperienced in handling financial affairs or a spendthrift. A trust can effectively separate the management of property from the enjoyment of the property.
You want to provide for a beneficiary but you want to be sure the property will pass to persons or charities of your choosing at the death of the primary beneficiary. With a trust, you can effectively control property for several generations of beneficiaries.
You want to give a beneficiary the enjoyment of property but prevent the property from being subject to estate tax at the beneficiary’s death. Because the trust will own the property, it generally will not be subject to estate taxation at the death of the beneficiary.
You want to leave your entire estate to family members and still make a major contribution to charity. A special form of trust — the charitable remainder trust — permits you to accomplish this objective with favorable tax consequences.