Trusts can be a valuable estate planning tool. Some trusts are revocable and some are irrevocable. Because an irrevocable trust cannot be revoked, they are usually created only for specific reasons. Once you place assets into an irrevocable trust, you cannot change your mind and take them back.
Some reasons people put assets into an irrevocable trust are (1) to protect assets from creditors; (2) to minimize your estate for estate tax purposes; and (3) to qualify for needs-based government programs.
Protect assets from creditors
Unless a transfer to an irrevocable trust can be proven to be for fraudulent purposes, a creditor generally should not be able to reach the trust assets. For instance, if the transfer of assets renders the grantor of the trust insolvent, the transfer would invite scrutiny.
Reduce tax burdens
Assets can be transferred to an irrevocable trust to minimize estate tax by removing the assets from your estate. Be aware of the fact that you have now given up control over these assets, and should you then wish to cancel a gift you have made under this trust you will likely not be able to do so.
Qualify for government services
Medicaid and Supplemental Security Income are needs-based government programs available to the financially needy. Transfer of assets to a special needs trust may allow an applicant to qualify for these programs. Be aware that other rules apply, as with Medicaid there is currently a five year look-back period, during which transfers for less than full consideration (gifts) may disqualify you from eligibility for benefits.
Balance your priorities carefully
There are other types of irrevocable trusts not addressed here.
Irrevocable Trusts should be used with care. Inability to revoke such a trust, and loss of control over assets are two issues to be seriously considered and weighed against the benefits of such a trust.