Irrevocable trust
An irrevocable trust is a trust arrangement that may provide for beneficiary access to trust assets and may be designed for long-term financial management across generations. For owners of businesses, real estate and private investments, the term describes a structure whose purposes, terms and rules for change depend on the trust and applicable law.
How it works
An irrevocable trust can give beneficiaries access under its terms. With a spousal lifetime access trust, the grantor makes an irrevocable gift to the trust, and the beneficiary spouse has access to trust assets for that spouse's lifetime.
Modification and termination can depend on the governing law and consent. In Utah, a noncharitable irrevocable trust may be modified or terminated with the consent of the settlor and all beneficiaries, even if the change conflicts with a material purpose. Colorado law directs a court to approve modification or termination when those parties consent.
Where it shows up for owners of businesses, real estate and private investments
Irrevocable trusts can hold assets for beneficiaries or manage property across generations. A practitioner describes a spendthrift trust as having a clause that addresses when a beneficiary's creditors can reach trust assets, with that description applying before distribution by the trustee.
Trusts holding real property can be subject to duration rules. Delaware's rule against perpetuities for real property held in trust applies 110 years from the later of when the property is added to or purchased by the trust, or when the trust became irrevocable.
Points that are easy to confuse
Irrevocable does not mean that every change is impossible. Utah and Colorado have consent rules for modification or termination, while a practitioner article describes a different consent rule for New York.
A practitioner describes dynasty trusts as arrangements for long-term financial management across generations, while Delaware's rule concerns a time limit for real property held in trust.
Common questions
Can an irrevocable trust ever be modified or terminated?
Modification or termination may be possible under state and trust rules. In Utah, the settlor and all beneficiaries may consent to changing or ending a noncharitable irrevocable trust, even if the change conflicts with a material purpose. Colorado law directs court approval when those parties consent.
Does irrevocable mean beneficiaries cannot receive trust assets?
No. Trust terms can provide for beneficiary access or distributions. A spousal lifetime access trust gives the beneficiary spouse access to trust assets for that spouse's lifetime. A spendthrift trust description addresses creditor access before the trustee distributes assets.