An irrevocable trust is a trust with terms and provisions that cannot be changed or revoked by the Grantor once created.
Because this trust cannot be revoked, it can provide tax benefits by reducing the estate’s tax liability. It can also provide income to subsequent beneficiaries that the Grantor names during and after his lifetime. In other words, these trusts maintain control of the assets even after death. This allows you power to name beneficiaries, and determine when and how the beneficiaries receive the money and/or property left to them.
Using an irrevocable trust results in significant benefit, including minimizing estate tax, protecting assets from creditors, and providing for family members who are minors, financially irresponsible, or who have special needs.
Example: Generally, if you make a gift of an asset to a beneficiary during life, the asset is not included in your taxable estate upon your death. An irrevocable trust give you an option other than simply giving an asset to a beneficiary to reduce your taxable estate. With a trust, you can set up the time of distributions (at certain ages), as well as reasons for the distributions (education only, upon marriage, etc.).
Another significant benefit of an irrevocable trust is it creates substantial protection from creditors. Once assets are transferred into the trust, the Grantor no longer legally owns the assets. Instead, they become the legal property of the trustee to hold for the beneficiaries. This is important in that it protects the assets of the Grantor, which are no longer legally his property but the property protected in the trust. Likewise, creditors of beneficiaries of an irrevocable trust generally cannot place a lien against trust assets until the assets are actually distributed to the beneficiary.