Irrevocable trusts are a powerful estate planning tool for people who want to protect assets, reduce taxes, and plan for long-term financial stability. In Oklahoma, irrevocable trusts work differently than other types of trusts, like revocable living trusts, because they involve permanently giving up control of certain assets. Here’s what you need to know about how they work and why some people choose them.
What Is an Irrevocable Trust?
An irrevocable trust is an arrangement where the person creating it (the grantor) transfers ownership of assets into the trust. Once the transfer is complete, the grantor generally cannot change or revoke the trust without the consent of the beneficiaries or a court order.
This is different from a revocable living trust, where the grantor can change terms, add or remove assets, or dissolve the trust at any time.
Who Manages an Irrevocable Trust?
When an irrevocable trust is created, the grantor appoints a trustee to manage the assets. The trustee has a legal duty to act in the best interests of the beneficiaries, following the trust’s instructions. The trustee might be:
- A trusted family member or friend.
- A professional fiduciary, such as an attorney or financial institution.
Why Do People Use Irrevocable Trusts?
There are several main reasons why people prefer irrevocable trusts, such as:
- Asset Protection – Because the assets no longer belong to the grantor, they are generally safe from creditors and legal judgments.
- Estate Tax Planning – For high-value estates, removing assets from the grantor’s ownership can reduce estate tax liability.
- Medicaid and Long-Term Care Planning – Assets in certain irrevocable trusts may not be counted toward Medicaid eligibility, which can be critical when planning for nursing home care.
- Special Needs Planning – A special needs trust can hold assets for someone with disabilities without affecting government benefit eligibility.
Is it Possible to Modify an Irrevocable Trust?
Generally, irrevocable trusts cannot be altered once created. However, in some cases, changes may be possible if:
- All beneficiaries agree.
- A court approves modifications based on unforeseen circumstances.
Because they are largely permanent, it’s important to work with an attorney to carefully design the trust before signing.
Potential Drawbacks
Although these trusts have their advantages, there are also several potential drawbacks:
- Loss of Control – The grantor gives up control over the transferred assets.
- Complexity and Cost – Setting up and maintaining the trust can be more expensive and complicated than other estate planning tools.
- Tax Considerations – While trusts can reduce estate taxes, they may have different income tax rules.
These drawbacks are just a few of the reasons as to why you should weigh all of your options before making a final decision.
Oklahoma City Estate Planning Attorneys
Irrevocable trusts in Oklahoma can offer significant benefits for asset protection, tax planning, and caring for loved ones, but they require careful planning since there are limits on your ability to make changes. If you’re considering a revocable trust or have questions about estate planning, our estate planning team at OKC Attorneys can help. Call us today at 405-367-8710 or ask a question online.
