What Are the Primary Pros and Cons of an Irrevocable Trust?

 Posted on October 14, 2024 in Estate Planning

While more than half of all adults in the United States believe that estate planning is important, only 33 percent of adults have an estate plan in place. In 2021, about 75 percent of those with an estate plan used a will, while almost 19 percent included a trust. As more and more people learn about trusts and understand the many benefits of a trust, that number is likely to increase.

 Most people have at least heard of using a trust as a part of a comprehensive estate plan, and many have taken advantage of its benefits. The most common type of trust is a revocable living trust, which can be changed as needed or even dissolved entirely.

On the other hand, an irrevocable trust does not allow for changes and cannot be dissolved. An irrevocable trust's benefits and potential disadvantages are discussed in more detail below. If you have questions regarding whether an irrevocable trust is right for you and your situation, it is beneficial to speak to a knowledgeable Oakbrook Terrace, IL trust lawyer from Farooqi & Husain Law Office.   

What Are the Advantages of an Irrevocable Trust?

When an irrevocable trust is used properly, it can offer a significant number of advantages. These advantages include:

• An irrevocable trust – like all trusts – affords you and your family members privacy. While a will becomes part of the public record during probate, a trust is exempt from the probate process, which means no one can access the information inside the trust.

• An irrevocable trust offers superior asset protection that shields the assets from the grantor’s and the beneficiaries’ creditors. The assets in the trust belong to the trust rather than to the grantor or the beneficiaries, so they are also out of reach of lawsuits.

• Assets that are part of an irrevocable trust are separate from the grantor’s taxable estate. Even after the grantor dies, the assets in the irrevocable trust are not subject to federal estate taxes.

• Unlike a will, an irrevocable trust allows you, as the grantor, to specify how a beneficiary may use the assets. As an example, you could mandate that a beneficiary only use the assets to further his or her education, or you could specify that the assets remain the sole and separate property of a beneficiary but only after he or she turns 30.

An irrevocable trust is beneficial for those who are active in a profession that is vulnerable to lawsuits, as it protects assets from seizure through a judgment or verdict. Although these benefits are significant, it is important to understand that an irrevocable trust can also be extremely restrictive.  

What Are the Disadvantages of an Irrevocable Trust?

An irrevocable trust cannot be changed or altered if you later decide you are not happy with the terms of the trust. Other disadvantages include:

• As the grantor, once you place your assets in an irrevocable trust, you no longer have control over those assets. The assets belong to the trust, and the trustee must manage the assets according to the trust terms.

• Irrevocable trusts are complex, and the language of an irrevocable trust must be precise to ensure the grantor’s interests are properly protected. Because of the complexity of an irrevocable trust, it will be more costly and time-consuming to prepare than a revocable trust.

• As noted, an irrevocable trust cannot be changed or dissolved. Very specific circumstances may allow a designated party to change a provision of the trust, but control of the trust will not revert to the grantor. Because of this, the trust terms must precisely reflect your wishes.

Contact a DuPage County, IL Estate Planning Lawyer

If you believe an irrevocable trust is the right document for some or all of your assets, it is important to speak to an Oakbrook Terrace, IL, irrevocable trust attorney from Farooqi & Husain Law Office. Attorney Naveed S. Husain couples his legal experience with a broad knowledge of Islamic family law and Islamic estate planning. Attorney Ausaf Farooqi is an experienced immigration and estate planning attorney who has a deep understanding of the intersection of Islamic personal law and U.S. law. Call 630-909-9114 to schedule an appointment to discuss your estate planning needs.