An irrevocable trust is a non-testamentary document that is created, in lieu or in conjunction, with a will. Irrevocable trusts are those trust that may not be re-claimed by the creator, or settlor, of the trust. Once property; or in legal terminology, res, is included in a trust it may no longer be re-acquired by the settlor.
Revocable trusts can also become irrevocable upon the death of the settlor. Once a settlor dies he, or she, can no longer access the trust assets and, by definition, the revocable trust becomes an irrevocable trust.
There are a set of requirements in the creation of an irrevocable trust. First, the trust must have a settlor. This is the individual who creates the trust and puts assets into it. The settlor must have the intent to make an irrevocable trust. Courts will scrutinize irrevocable trusts to determine whether the settlor’s true intention was to make an irrevocable trust, a revocable trust or a will.
There must also be delivery of the irrevocable trust to the trustee. The trustee is the manager of the trust. It is usually an attorney or a financial institution that manages and invests assets. The delivery requirement is very specific; intent is not a valid defense. If you are on your way to deliver your finalized trust to your trustee and you die on route the trust will be invalid.
Every trust, whether revocable or irrevocable must contain property, or res. By law, you are not permitted to create an irrevocable trust for the disposition of future assets. The amount of assets that are required in a trust for it to be valid depends entirely on State law.
An irrevocable trust also requires known beneficiaries. A irrevocable trust must have specifically named beneficiaries. For example, you can designate the beneficiary of your trust to be Steve Lyons, but you cannot designate “my best friend and his issue” as your trust beneficiary.
Irrevocable trusts, unlike revocable trusts, are used as a way to avoid estate taxes. Once a settlor places assets into a trust they no longer become the property of the settlor. From that point on they are the property of the trustee for the benefit of the beneficiaries. As such, any amount that the settlor puts into the trust can not be used to calculate estate taxes.
Irrevocable trusts are also a great way to avoid creditors. Just as in the estate tax example, the assets of the irrevocable trust are not the property of the settlor but of the trustee. This is distinguished from revocable trusts. In revocable trusts the settlor has the right to re-enter the trust and retrieve assets. As such, since the assets are still accessible to the settlor it is policy that they also be accessible to creditors, including the government.
You do not need to be the settlor of an irrevocable trust in order to put assets into the irrevocable trust. Any individual is permitted to give property to a pre-existing trust. The individual is not permitted to designate different beneficiaries. When someone adds to a trust the assets will be distributed, at the time and method specified, to the beneficiaries of the initial trust agreement.