The differences between an irrevocable living trust and a revocable living trust can have significant consequences for you and your estate plan, if you do not understand those differences. If you are contemplating the creation of an irrevocable living trust, you really should take the time to be sure that you are aware of the differences between the two. The following information should help to provide a greater understanding of the irrevocable living trust.
The purposes for which irrevocable living trusts are primarily used consist of (a) the transfer of wealth, (b) the protection of assets, and (c) obtaining a reduction in one’s estate tax liability.
Some of the most prevalent irrevocable living trust types include the irrevocable life insurance trust, which is often used to reduce tax liability; the gift and estate tax avoiding trusts such as the grantor retained annuity trust; and, the self-settled trust or domestic asset protection trust, which are used to protect the assets of the settlor and his or her family.
Even though an irrevocable living trust is, by nature, not intended to be modified or amended, it is not impossible to do so. If a person desires to alter the terms of an irrevocable living trust then, generally, he or she will need to point out a provision in the trust that allows for modification or amendment. If he or she cannot do so, the courts will not allow the modification or amendment to occur or to be effective. An example of such a provision would be where the trustee receives a lifetime power of appointment, allowing them to change the terms to benefit current or future beneficiaries.