Although it may be the best known, a will is not the only tool you can use to dispose of your assets. In fact, there are other beneficial ways to accomplish this, a trust being one of them. There are actually a variety of trust types you can utilize in your estate plan and they all have unique characteristics and can be used to accomplish unique goals in your plan. One such trust type is an irrevocable trust. Before you add an irrevocable trust to your estate plan, however, you should weigh the advantages and disadvantages of this trust type.
Advantages and Disadvantages of Irrevocable Trusts
You set up an irrevocable trust just like you would any other trust. The trust is created and then you transfer assets into the ownership of the trust. A trustee is appointed and the terms of the trust are memorialized in the trust document. The uniqueness of an irrevocable trust comes, in part, by the fact that once you establish the trust, it is a point of no return in many respects. As the name suggests, an irrevocable trust cannot be revoked.
In fact, an irrevocable trust has an incredibly inflexible structure. Once established, it cannot be revoked or modified except under extremely limited circumstances. This means that once you move your assets into the trust, you have waived any kind of control over those assets. If you should need to change the terms of the trust in any way or seek to revoke the trust, you cannot do so unilaterally. To do any of this, you would need to get permission from all adult beneficiaries of the trust.
As mentioned, the inflexibility of the irrevocable trust structure also results in a loss of control of your assets as the grantor of the trust. You cannot access the assets you transferred in the trust nor can you manage those assets. In some cases, depending on how you established the irrevocable trust, you may receive income distributions from the trust, but you cannot access trust assets should you fall into a time of financial difficulty. Where otherwise you may have been able to sell an asset to help your financial fluidity, you cannot do this once an asset has been transferred into the irrevocable trust.
The inflexibility also means that you cannot change an irrevocable trust in the event that unforeseen life changes occur. There are a number of things that could change over time, whether it be familial relationships or goals for the future, that could impact how you would want a trust structured. When it comes to an irrevocable trust, however, there is almost no room for flexibility in changing the trust to reflect a change in goals or life circumstances.
At this point, you may be questioning why anyone would want to establish an irrevocable trust. However, the advantages of an irrevocable trust can far outweigh the disadvantages. For instance, irrevocable trusts can help lower tax liability. They can protect you and trust beneficiaries protected from lawsuits. Furthermore, irrevocable trusts can help prevent beneficiaries from mishandling assets. Essentially, irrevocable trusts can help you plan for the preservation of your estate as well as the proper distribution of estate assets.