An irrevocable living trust is one set up by someone within his or her lifetime with the intent of leaving wealth behind after death. The distinguishing characteristic of such a trust is that the person who endows the trust, also known as the grantor, loses control of the assets of the trust once the endowment is made. This type of trust provides financial benefit to the descendants in the form of reduced taxes and also eliminates probate costs. Wealthy people are most likely to set up this type of trust because they're more likely able to afford to set assets or property aside for the trust and still have enough left over for their daily use.
Living trusts can be broken down into irrevocable and revocable trusts. A revocable trust allows the grantor the option of amending the trust at some point during their life if they find the terms not to their liking. In contrast, an irrevocable living trust is untouchable by the grantor while he or she is still alive. When the grantor dies, control of the trust passes on to the descendants or whoever has been named as beneficiaries.
This arrangement would not be of much use to all those except the extremely wealthy, since most people need control of their assets while they are still alive. An irrevocable living trust does hold advantages to those who can afford to endow them. Chief among those are the tax benefits they provide to the descendants, who face reduced taxes on their inheritance. This is because the trust acts as its own entity and pays taxes on the income it generates.
In addition to the tax benefits, an irrevocable living trust gives the grantor the option to see how the trust is performing in his or her lifetime. The grantor can also watch how the trustee in charge of the trust handles its day to day management. Many wealthy people choose an irrevocable living trust as the vehicle for leaving wealth to charity after they die.
If the grantor can live with the idea that an irrevocable trust removes the possibility of any change of heart, there are other benefits available. By establishing the trust, all probate or court costs are immediately removed from the equation. In the case of certain types of these trusts, there may also be an income tax deduction available to the grantor. Most beneficial of all though is the knowledge that this type of trust eases the financial burden on the beneficiaries, who can better enjoy the inheritance left to them.