What to Know About the Benefits and Dangers of Irrevocable Trusts

Estate planning is a critical activity as you age, as you’ll need to develop an asset protection plan to ensure your heirs get as much of your wealth as possible. You’ve worked hard to get to your position, and your kids and grandchildren should be able to capitalize on everything you’ve accumulated over the years. 

Asset protection involves putting your money and other assets in a place where creditors and the government can’t get them. The process can include giving up ownership of certain assets today to protect them for your beneficiaries in the future. 

One of the best asset protection methods you’ll find is an irrevocable trust, though they can have some drawbacks. This guide looks at your options and examines the pros and cons of transferring assets to an irrevocable trust to protect them for your heirs.

What Is an Irrevocable Trust?

An irrevocable trust is an arrangement where a grantor legally transfers ownership of assets to a beneficiary. The grantor gives up ownership of these assets in this scenario, reducing the value of the grantor’s estate for tax purposes while protecting assets from creditors. 

Assets a grantor might put in an irrevocable trust include life insurance benefits, real estate, cash, businesses, and investments. Transferring these assets also protects them from legal judgments and lawsuits, ensuring families can hold onto their wealth for generations to come.

Types of Irrevocable Trusts

Several irrevocable trust options are available, depending on your situation. You’ll want to look at each type to determine what works for you. Some common types of irrevocable trusts include the following:

Irrevocable Life Insurance Trust

You can designate a beneficiary for your life insurance policy by establishing an irrevocable life insurance trust. This setup ensures the proceeds from your policy go into the trust when you pass away, helping your heirs avoid estate taxes if you have a sizable life insurance payout coming.

Irrevocable Marital Trust

Transferring assets from one spouse to another involves establishing an irrevocable marital trust. This trust kicks in when one spouse dies, keeping certain assets outside the estate. The grantor gets to decide how much income the living spouse can take from the estate by establishing withdrawal limits, and this income avoids estate tax. 

Irrevocable Charitable Trust

It’s possible to pass assets to a charity using an irrevocable charitable trust. A charitable lead trust involves designating certain assets to the charity and others to beneficiaries, while a charitable remainder trust allows you to continue using your assets, with the rest going to a charity when you die. Remember that you can’t change the amount you’ll have access to when using a charitable remainder trust, no matter how your life changes.

These types of irrevocable trusts could be worth looking into, depending on how you wish to allocate your assets. You can also leave other assets directly to a beneficiary, as it all depends on what you want to pass on to your heirs and the assets you have available.

Five Things You Should Know About Irrevocable Trusts

Learning as much as possible about irrevocable trusts ensures you’ll understand what you’re getting into before you start. These arrangements can be beneficial, but they aren’t without risks and downsides. Here’s what you should know:

1. The Assets Are No Longer Yours 

One drawback with establishing an irrevocable trust is that the assets no longer belong to you. The trust gains ownership of any assets you protect in this way, with the trustee having the final say over them until the beneficiary takes control. This setup could prove problematic if you decide you need those assets in the future because reestablishing control is a challenging process. 

2. There Are Tax Benefits

You will see tax benefits through an irrevocable trust because you are no longer on the hook for the tax liability on the income your assets generate. These assets are also removed from your taxable estate, so your heirs will see tax benefits. The assets no longer belong to you, so you aren’t responsible for any expenses related to them.

3. You Can’t Make Changes

One of the dangers of an irrevocable trust is that you can’t make changes to the agreement without the beneficiary agreeing or a court order. This scenario can cause issues if you have a change of heart or your relationship with the beneficiary changes in the future. The gist is that you’re stuck leaving your assets to the beneficiary, no matter what happens between the two of you down the road.

4. Mistakes Can Happen

Attorneys typically do a good job creating a trust, but mistakes can happen, especially if you use a generalist without much experience dealing with this particular issue. An experienced advisor can guide you through the estate planning process, minimizing the chance of an error occurring. These mistakes could put you on the IRS’s radar, so eliminating them as much as possible is the best path forward.

5. The Grantor Can’t Be the Trustee or Beneficiary

Can a beneficiary add assets to an irrevocable trust? The short answer is no because the grantor is the person putting assets in the trust, and that person can’t be a trustee or beneficiary. You can’t use the trust to shield personal assets you plan to use, so only the grantor can add assets to the trust. 

Gathering as much information as possible on irrevocable trusts will help you make the right decision before establishing one. Speaking with an estate planning advisor can also ensure you take the necessary steps to protect your assets.

Estate Planning to Meet Your Needs

Estate planning is all about guarding your assets against creditors and tax collectors, ensuring your heirs can benefit from your hard work. It also guarantees your assets are distributed according to your wishes. Getting expert help streamlines the process.

Bogart Wealth offers estate and multigenerational planning advice in Northern Virginia and Houston, Texas. Our team can help determine if a trust is the best path for your family. Contact Bogart Wealth to speak with an expert about irrevocable trusts.


Please remember that past performance is no guarantee of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Bogart Wealth, LLC [“Bogart Wealth”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Bogart Wealth. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Bogart Wealth is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Bogart Wealth’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.bogartwealth.comPlease Note: Bogart Wealth does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Bogart Wealth’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please Remember: If you are a Bogart Wealth client, please contact Bogart Wealth, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services.  Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.

latest posts

Stay up to date with our most recent news and updates!

IT Support by SADOSSecure, Fast Hosting for WordPress

Work with a financial advisor who puts your needs first.

Want to talk first? Call us at
(866) 237-0121

  • This field is for validation purposes and should be left unchanged.

You are now leaving the Bogart Wealth, LLC / Bogart Wealth™ (“Bogart”), website and entering a third party website that we do not control.

Bogart is not responsible for third party websites hyper linked our website, and does not guarantee or necessarily endorse any content, recommendations, products or services offered on third party sites.

In addition, third party websites may have different privacy and security policies than Bogart. Therefore, you should review the applicable privacy and security policies of any third party website before you provide any information.