Irrevocable Trusts

Navigating the various estate planning tools available in Texas can be overwhelming if you’re not familiar with the purposes and outcomes tied to each of them. If you’ve begun researching your options for protecting your assets and creating a plan for your beneficiaries, you may have heard of irrevocable trusts. They’re a popular choice for many Texans because of the security they can provide; however, they aren’t right for every situation.

To describe an irrevocable trust, we should briefly explain trusts in general.

A trust is a legal arrangement, sometimes referred to as a fiduciary relationship, in which there are three roles: a grantor, a trustee, and a beneficiary. The grantor, sometimes called the settlor or trustor, creates the trust. They establish the terms of the trust, including who the beneficiary is and what assets are included in the trust.

The grantor transfers the right to hold title to their assets to the trustee, who manages the assets for the benefit of a third party, the beneficiary. Upon that transfer, the assets become assets of the trust. The duties, rights and obligations of the three parties are governed by a trust agreement created by the grantor.  A trust is not a corporate entity or partnership.

There are primarily two kinds of trusts: irrevocable trusts and revocable trusts. They’re both used as estate planning tools; but, they’re different from one another.

An irrevocable trust is one that generally is not able to be changed or revoked except in one of the following circumstances:

• When all beneficiaries of the trust agree to a change; for example, when the trustee “decants” the assets from the trust to a new trust with different terms;
• When the trust agreement itself provides a mechanism for amendment, such as the appointment of a special trustee or the use of a trust protector with powers to amend the trust under specific conditions; and,
• When a court rules that a change is allowed.

You may have heard of these trust tools that are used in Texas estate planning. They are all irrevocable trusts:

• Asset Protection Trusts
• Life Insurance Trust
• Medicaid Asset Protection Trust
• Self-funded Special Needs Trust
• Qualified Personal Residence Trust
• Charitable Remainder Trust
• Special Needs/Supplemental Needs Trust
• Spousal Lifetime Access Trust

Irrevocable trusts provide more long-term security than their revocable counterparts, but there are other benefits, as well. Many Texans find the following characteristics of irrevocable trusts to be advantageous:

• irrevocable trusts protect assets from creditors;
• irrevocable trusts safeguard assets for beneficiaries and heirs;
• irrevocable trusts provide detailed guidelines for how a grantor wants their property to be handled;
• assets in irrevocable trusts are protected from misuse by beneficiaries;
• irrevocable trusts provide tax benefits; and,
• placing property in an irrevocable trust can make probate faster and less costly.

Though people often find irrevocable trusts to be a valuable addition to their estate plan, there are downsides in using this tool. The most commonly discussed disadvantage is the lack of flexibility. Once your assets are transferred to an irrevocable trust, you’ll have little unilateral control over how the assets are handled since the beneficiaries must agree to any changes. If you expect your goals or preferences to significantly change in the future, an irrevocable trust may not be the best option for you.

If you’ve decided that an irrevocable trust is right for you, one of the first steps you should take is to contact an estate planning attorney experienced in designing trusts.  The attorneys at Reagan Moore can guide you to a plan using an irrevocable trust that meets your objectives. But first and foremost, we’ll hear you out. Understanding your goals will shape our strategy for you. We’re here to discuss your options.