What is an Irrevocable Trust?
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An irrevocable trust is a trust in which the grantor cannot change the terms of the trust or terminate it. In addition, the grantor does not have access to the funds in the trust.
There are other characteristics of an irrevocable trust:
- This type of trust may be used as part of a broader estate plan to push the proceeds of a life insurance policy outside of the insured’s estate, thereby avoiding estate taxes.
- Once set up, an insured cannot change the beneficiary nor the trustee and cannot borrow money from the cash value of the life policy.
- Transferring an existing life insurance policy may create ownership issues. It is best to place a new policy into a trust.
- A Crummey Trust can help avoid paying gift or estate tax by exempting the premium payments.
- The proceeds from life insurance in this type of trust can help provide liquidity need to pay estate taxes on illiquid assets, helping to keep family farms or businesses within the family.