About Irrevocable Trust

A trust that can't be modified or terminated without the permission of the beneficiary. The grantor, having transferred assets into the trust, effectively removes all of his or her rights of ownership to the assets and the trust.

This is the opposite of a "revocable trust", which allows the grantor to modify the trust.

The main reason for setting up an irrevocable trust is for estate and tax considerations. The benefit of this type of trust for estate assets is that it removes all incidents of ownership, effectively removing the trust's assets from the grantor's taxable estate. The grantor is also relieved of the tax liability on the income generated by the assets. While the tax rules will vary between jurisdictions, in most cases, the grantor can't receive these benefits if he or she is the trustee of the trust.

The assets held in the trust can include, but are not limited to, a business, investment assets, cash and life insurance policies.

A trustee of an irrevocable trust acts as a "fiduciary" and has the responsibility to carry out the duties of a trustee as set forth in the law. If the trustee fails to carry out these duties properly, the trustee is liable for any loss involved, may be liable for punitive damages, and may have to pay all legal fees and costs for the person bringing the legal action as well as the legal fees in defending the trustee. A trustee, if challenged, must prove what he or she did, that it was proper and that it was done for the good of the trust and the trust beneficiary or beneficiaries.

An "irrevocable" trust is one which cannot be changed or amended, except pursuant to a court order, which is difficult to obtain. Assets can still be invested, can be sold and purchased, and payments made to a beneficiary or beneficiaries in accordance with the provisions of the trust.

A trustee is not exempt under the law because he or she is the spouse or child of the trust creator. Although a husband may establish an irrevocable trust at death for his wife and the wife may be the trustee and beneficiary, the children, who receive the trust assets at their mother's death still have legal rights. They may demand an accounting, inquire as to investments, question payments of principal for their mother's health and support, and even bring a legal action against their mother for the claimed mismanagement of the trust. It is not unusual for a child or children to sue a parent or for a brother or sister to sue a sibling.

Types of Trust:

Discretionary Trust - A Trust where distribution of funds to the beneficiaries is mainly at the discretion of the Trustees

Inter-Vivos Trust - An expression used to indicate a Trust created during the Settlor's lifetime

Purpose Trust - A Trust that is not a trust for the benefit of an ascertainable person or group of persons but is established for a stated purpose or purposes.

Fixed Trust - A Trust where the interests of the beneficiaries are clearly defined

Asset Protection Trust - A trust that is established in a jurisdiction which has provisions in its trust legislation to provide enhanced protection for the assets of the trust fund

Glossary of  Terms:

Beneficiary - A person who is entitled to a benefit whether contingent or not under a Trust.

Protector - A third party who has the right to veto some actions of the Trustee. The powers of the protector are usually negative in nature (i.e. the consent is required) but may be positive in nature (i.e. the removal of the trustee).

Settlement - An expression to indicate the act of creating a Trust.

Settlor - A person creating a Trust. Often referred to as the Grantor in the USA

Trustee - The person or corporation is responsible for the execution, administration and management of the Trust.

Memorandum / Letter of Wishes - A document in which the Settlor indicates to the Trustee his wishes in relation to the administration of trust. This can be completed either by a letter from the Settlor or a Trustee memorandum setting out the Settlors wishes during a meeting. These wishes are informal and not binding on the Trustee.

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