Wills and Estates
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What is an irrevocable
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What is an irrevocable trust?
An irrevocable trust is a trust over which the grantor (one who sets up the trust) has no power to change or revoke any terms of the trust. An irrevocable trust can be established during the grantor's lifetime or in a Will. If the trust is established in a Will, it is commonly called a testamentary trust and, by its nature, is an irrevocable trust because the grantor is unable to change the terms by virtue of his or her death.
There are two types of trusts commonly found in Wills. The first is a Minor's Trust, which would come into effect if both parents die before the child(ren) reach adulthood. This type of trust generally gives the trustee and/or guardian flexibility in providing for the children based on their ages and health. For example, one child may have already graduated from college and another may not have started college yet. A properly drafted trust would allow for the younger child's college education before dividing the assets between the children. Another situation arises where one child has a physical or mental disability and requires more care than other children. These situations, as well as other unique or not so unique situations, can be drafted into a minor's trust so a parent can be confident the children will be cared for according to their wishes.
The second type of testamentary trust commonly used is the Bypass Trust. Although this trust is sometimes called different names, such as family trust or B trust, the basic concept is the same. The first spouse to die directs that an amount up to $600,000 be placed in this trust in order to take full advantage of the unified credit. (See question on Unified Credit for explanation.) The surviving spouse is then entitled to all of the income from the trust and can invade the principal of the trust if necessary for his or her health, maintenance, education and welfare. At the death of the surviving spouse, the remaining trust balance passes to the children or other designated beneficiaries free of federal estate tax.
There are also many other uses for trusts in Wills, although they are not as common. For example, there are Qualified Terminable Interest Property (QTIP) trusts, marital trusts, estate or power of appointment trusts and charitable trusts but they are beyond the scope of this question.
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