Phoenix, AZ estate planning attorney Mark A. Bregman explains the intentions behind why someone would want to create an irrevocable trust.
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Irrevocable trusts are almost always used in connection with some income or estate tax purpose. The most common form of an irrevocable trust is a life insurance trust commonly called ILITs. And that’s a technique that we use for people to transfer money to an irrevocable trust where they lose control of the money at a very low cost. And then in the instance of life insurance premiums and so, you get the premiums out of your estate and then when you die and the policy pays off it’s inside that protected structure and it’s not counted against your estate. There’s other types of irrevocable trusts, GRATs, and charitable trusts and different things like that but almost always irrevocable trusts have to do with estate or income tax savings. You don’t use irrevocable trust very often or I should say properly to give money to your kids, for instance, unless you want to lose control. The most common problem with irrevocable trusts is the person that gives the money to the trust 15 years later says oh, I’ve got a million dollars’ worth of cash value in that insurance policy that’s inside the trust, I’d like to get that back. Well, you can’t get it back. You gave it up and the deal that you made with the government is you gave up control over the money in exchange for it not being includable in your estate. And I could start citing a bunch of Internal Revenue code but that would just bore everybody to death.