Irrevocable Trust

WHAT IS AN IRREVOCABLE TRUST?
An Irrevocable Trust is created by an individual that cannot be revoked, altered, or amended. This means that once you execute this trust, you will loose any ability to make changes to Trust Instrument. 

WHAT ARE THE BENEFITS OF AN IRREVOCABLE TRUST?
The single most benefit of an Irrevocable Trust is that assets held in this Trust are excluded from the Grantors Estate. This allows assets held under such a Trust to escape Estate Taxes. Another benefit is Creditor Protection, since your assets are no longer under your control Creditors cannot reach into it (there are certain exceptions to this). 

WHAT ARE THE DISADVANTAGES OF AN IRREVOCABLE TRUST?
Loss of Control: One of the major disadvantages of an Irrevocable Trust is that you loss of control over your assets that are placed in this Trust. 

There is a 3 (Three) year Rule: The common form of asset placed in an Irrevocable Trust is Life Insurance. If you place your Life Insurance policy in the Trust and were to Die within 3 years of placing it, the Life Insurance proceeds will be Taxed. 

There is a 5 (Five) year: If you have put your assets in an Irrevocable Trust and need Medicaid within 5 years of creating such a trust and putting your assets in there, you will be required to re-pay for cost dollar for dollar up to the value of your total assets for nursing home costs and only once you have paid dollar for dollar the value of the Trust, you will become eligible for Medicaid. 
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Despite these disadvantages, Irrevocable Trusts are very attractive in Life Insurance and other Complex Gifting Situations. 

THE BENEFITS OF PUTTING AN INSURANCE POLICY(IES) INTO AN IRREVOCABLE TRUST (ILIT)
Irrevocable Life Insurance Trusts (ILITS) have become very popular in recent years. Almost everyone who gets a life insurance policy is aware that there is no income tax on Life Insurance Policy proceeds. However, most do not realize that the amount is counted towards the total value of your estate and is subject to an Estate Tax. 
HOW DO YOU AVOID ESTATE TAXES ON LIFE INSURANCE POLICIES?
One way to avoid taxes on Life Insurance proceeds is by putting the Policy in an Irrevocable Trust.