Irrevocable Trust
A trust that permanently transfers assets out of the grantor's estate and cannot be altered or revoked after creation.
What is Irrevocable Trust?
An irrevocable trust permanently removes assets from the grantor's taxable estate, protecting them from creditors, estate taxes, and legal judgments. Once established, the terms of an irrevocable trust generally cannot be changed without beneficiary consent. Common types include Irrevocable Life Insurance Trusts (ILITs), Qualified Personal Residence Trusts (QPRTs), and Charitable Remainder Trusts (CRTs). The trade-off for asset protection and estate tax benefits is a complete surrender of control: the grantor no longer owns or controls the assets. Irrevocable trusts are most valuable for high-net-worth individuals with estates exceeding the federal estate tax exemption.
Example
A high-net-worth individual places a $5 million life insurance policy inside an Irrevocable Life Insurance Trust (ILIT). Because the trust owns the policy — not the individual — the $5 million death benefit is excluded from the taxable estate. At the 40% estate tax rate, this saves the heirs up to $2 million in taxes. The trade-off: the individual cannot later reclaim the policy or alter the trust's beneficiaries without complex legal proceedings.
Source: IRS — Irrevocable Trusts