How to Lock Your Assets Away with an Irrevocable Trust

A living trust, also known as a revocable trust, is a great way for someone to protect their family members from the long and sometimes arduous process of probate. What some may not know is how to turn that revocable trust into an irrevocable trust.

What’s the difference between a revocable and an irrevocable trust?

When a revocable trust is first created, it can be changed, amended, or revoked (i.e. canceled) by the grantor (or creator) of the trust as circumstances and preferences change throughout their life. However, this leaves all assets that have been placed in the trust open to estate taxes, creditors, and possible litigations.

An irrevocable trust on the other hand, cannot be changed or revoked, as all assets are shifted from the grantor to the trust, essentially locking them in a vault that only the trustee and beneficiaries have access to upon the grantor’s death. This protects the assets from creditors, litigations, and taxes, guaranteeing their unconditional passage to the beneficiaries. Any changes to the trust must be signed off by the beneficiary(ies) or the court.

What would trigger a revocable trust to become irrevocable?

An irrevocable trust can be setup on its own, but if a living trust is created, there are two ways it can become irrevocable:

Upon death – The living trust automatically becomes irrevocable upon the death of the grantor.

Incapacitation – If at any point during their life the grantor becomes incapacitated, and can no longer make sound, legal decisions due to illness or accident, a living trust can become irrevocable until the grantor is no longer incapacitated. This helps protect the grantor’s assets from potential creditors or bad actors, such as a family member, friend, or trusted professional using undue influence to change, amend, or cancel the revocable trust.

What does having an irrevocable trust mean for you as a beneficiary?

Once an irrevocable trust is created (or a living trust becomes irrevocable), it secures your rights to the assets. You can also enforce the provisions of the trust and hold any trustees accountable. However, because the trust can no longer be changed if anything should happen to a beneficiary, such as disagreements over asset distribution or a beneficiary passes away before the grantor, modifications can be extremely hard and contentious. Read our article, “5 Beneficiary Rights to Know,” to learn more.

Asset management through a trust can be tricky, but when done in the right way, it can help protect your inheritance and give you peace of mind. Check out our guide for What Every Beneficiary Should Know About Trusts, Estates, and Probate, and then speak to a qualified estate planning attorney to make sure your rights are protected.

Tags: beneficiary, death, incapacitation, irrevocable trust, revocable trust
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