In my 15+ years practicing trusts and estates, I've received many questions and helped many clients create irrevocable trusts.
Two Primary Reasons for Irrevocable Trusts
1. Asset Protection
When the grantor (trust creator) transfers assets into an irrevocable trust, it can provide significant asset protection for trust beneficiaries—whether spouse, children, grandchildren, or other loved ones.
2. Tax Benefits (Primarily Estate Tax)
Example: Transfer $1 million in brokerage account stock to irrevocable trust. If it appreciates to $2 million by your death, only the original $1 million factors into estate tax calculations. All appreciation ($1 million+) occurs outside your taxable estate. If the account continues growing to $3-5 million, all additional appreciation stays outside anyone's taxable estate—a powerful way to build generational wealth.
This is especially important given upcoming tax law changes.
Income Tax Considerations
While trusts generally pay higher income tax rates than individuals, we can structure irrevocable trusts so income tax consequences flow back to the grantor as an individual, creating much more favorable tax situations.
Advantages Summary
- Asset protection for beneficiaries
- Estate tax savings through appreciation freeze
- Generational wealth building
- Income tax optimization (when properly structured)
Disadvantages to Consider
Difficulty Making Changes
As the name suggests, it's not easy to change irrevocable trusts. However, it's not impossible—we can add flexibility features like:
- Powers of appointment
- Trust protectors
- Florida law modifications (case law or statutory)
Loss of Control
Once assets transfer into the irrevocable trust, the trustee—not the grantor—controls those assets. This makes it critical to name someone you have high faith, trust, and confidence in:
- Trusted family member
- Adult child
- Spouse
- Professional fiduciary (bank, trust company, attorney, other trusted advisor)
Importance of Expertise
Given the complexities and potential pitfalls, it's crucial to work with an attorney or law firm with high experience and expertise in irrevocable trusts.
If our office can help, please reach out by phone or through our website contact forms.
Compare with living trust advantages to determine the best approach for your situation.
