Irrevocable Trust

An irrevocable trust cannot be modified, amended, or terminated by the grantor once executed, except under narrow judicial doctrines or state decanting statutes.

Key features of an irrevocable trust:

Estate Exclusion

Assets transferred to the trust are removed from the grantor’s gross estate for estate tax purposes (governed by IRC §2036 and IRC §2038), provided the grantor retains no beneficial interest or control.

Asset Protection

Assets are shielded from the creditors of both the grantor and the beneficiaries, as the grantor no longer owns the property.

Taxation

If structured as a non-grantor trust, the trust is a separate tax entity filing Form 1041. It is subject to the compressed trust income tax brackets. Retained ordinary income is taxed at the top 37% rate on income exceeding $16,000 for tax year 2026.

Common irrevocable trust structures include:

• Irrevocable Life Insurance Trust (ILITs): Holds life insurance policies to exclude the death benefit from the grantor’s taxable estate under IRC §2042.
• Grantor Retained Annuity Trust (GRATs): Transfers high-appreciation assets to heirs with minimal gift tax exposure under IRC §2702.
• Charitable Remainder Trust (CRTs): Provides income to a non-charitable beneficiary, with the remainder passing to charity under IRC §664.
• Special Needs Trust (SNT): Preserves eligibility for government benefits (such as Medicaid and SSI) for a disabled beneficiary under 42 U.S.C. §1396p(d)(4)(A) (section “Special Needs Trusts”).