When Should You Use an Irrevocable Trust in Your Estate Plan?

When most people think about estate planning, they imagine a will or maybe a living trust. But for those looking to protect their assets, minimize estate taxes, or qualify for certain benefits, an irrevocable trust can be a powerful—though less flexible—tool.

For many clients, the irrevocable trust is an advanced planning technique that doesn't make sense for their particular legacy. But there are situations where it may make sense and be a great addition to protect your family.

As you navigate the right estate plan components for you and your family, it's important to understand irrevocable trusts and whether they should be a part of your estate plan.

What Is an Irrevocable Trust?

An irrevocable trust is a legal arrangement where a person (called the “grantor” or “settlor”) permanently transfers assets into a trust. Once the assets are placed in the trust, the grantor generally cannot change the terms, remove the assets, or dissolve the trust without the permission of the beneficiaries or a court.

This lack of control may sound extreme, especially when compared to a revocable trust (which the grantor can alter or revoke at any time). But that very rigidity is what gives irrevocable trusts their greatest strengths—asset protection, tax planning, and eligibility for benefits.

Key Roles in a Trust:

• Grantor: The person who creates the trust and transfers assets into it.

• Trustee: The person or institution responsible for managing the trust in accordance with its terms.

• Beneficiaries: The people or organizations who will receive the trust’s assets or income.

Once the trust is funded, the grantor typically gives up ownership and control of the assets and cannot serve as the sole trustee. This legal separation is what allows the trust assets to be treated differently for tax and legal purposes.

When Is an Irrevocable Trust Useful?

Irrevocable trusts aren't for everyone, but they can be highly effective in specific scenarios. Here are six common situations where an irrevocable trust may be the right move.

1. Asset Protection from Lawsuits or Creditors

If you work in a high-risk profession (like medicine, law, or real estate development), or you simply want to shield your assets from potential future claims, an irrevocable trust can be a strong layer of defense.

Because the trust—not you—owns the assets, they generally can’t be touched by your creditors or judgment holders. This is especially useful for individuals concerned about long-term liability exposure. But beware, you must fund the trust before any legal trouble arises. Transfers made during or after a legal claim may be considered fraudulent.

2. Reducing Estate Taxes

High-net-worth individuals often use irrevocable trusts to reduce the size of their taxable estate. For example, placing life insurance into an Irrevocable Life Insurance Trust (ILIT) removes the death benefit from your estate, which could save hundreds of thousands of dollars in estate taxes. Similarly, gifting assets to an irrevocable trust during your lifetime can reduce your estate’s value and shift future appreciation to your beneficiaries.

This is especially relevant if your estate exceeds the federal estate tax exemption ($13.61 million per individual in 2024), or if you're planning ahead for possible lower exemption levels in future tax years.

3. Qualifying for Long-Term Care Benefits (Medicaid Planning)

Long-term care is expensive—and not typically covered by Medicare. Medicaid can help, but it has strict asset and income limits.

By transferring assets into an irrevocable trust well in advance (typically at least five years before applying for Medicaid in Minnesota), those assets may be excluded from eligibility calculations. This planning allows individuals to protect a family cabin, retirement savings, or other valuable property from being “spent down” to qualify for care.

4. Preserving Family Wealth

If you want to ensure that certain assets stay in your family for generations—or avoid the risks that come with outright inheritance—an irrevocable trust can add structure and control.

You can:

• Prevent young or financially irresponsible beneficiaries from mismanaging an inheritance.

• Ensure that assets remain in the bloodline, even if a child divorces.

• Provide for a loved one with special needs without jeopardizing their public benefits.

In this way, irrevocable trusts are often central to multi-generational estate plans.

5. Charitable Giving

If philanthropy is important to you, an irrevocable trust can offer tax-efficient ways to give to charity while also providing income to yourself or your family.

Two common structures:

• Charitable Remainder Trust (CRT): Provides income to you or your beneficiaries for a term, with the remainder going to charity.

• Charitable Lead Trust (CLT): Pays income to charity for a period of time, then leaves the remainder to your heirs.

These vehicles can help reduce capital gains taxes, secure an income tax deduction, and support causes you care about—all while maintaining some benefit to your family.

6. Special Needs Planning

If you have a child or loved one with a disability who relies on public benefits like SSI or Medicaid, a Special Needs Trust (a type of irrevocable trust) can provide financial support without disqualifying them from these programs.

The trust can cover supplemental needs—like therapy, education, vacations, or a caregiver—without interfering with government benefits.

Not Everyone Needs an Irrevocable Trust

While irrevocable trusts can be incredibly useful, they also come with downsides as well:

• Loss of control: Once assets are in the trust, you can’t take them back or change your mind easily.

• Complexity: These trusts often require careful legal and tax guidance to set up and administer properly.

• Upfront cost: Drafting and funding an irrevocable trust typically involves higher legal fees than a simple will or revocable trust.

Because of these trade-offs, irrevocable trusts are best for people with specific asset protection, tax, or benefit eligibility goals—not just as a default estate planning tool.

Minnesota & Irrevocable Trusts

In Minnesota, as in other states, planning ahead is key. Whether you're trying to protect your homestead from nursing home costs or shield inherited farmland from estate taxes, an irrevocable trust can be part of your strategy—but only if it's done well before a crisis hits.

Do You Need an Estate Planning Attorney?

If you are considering an irrevocable trust (or a revocable trust) or are just looking for more information on what's the best option for you and your legacy, let's schedule a Legal Strategy Session online or by calling my Edina, Minnesota office at (612) 294-6982 or my New York City office at (646) 847-3560. My office will be happy to find a convenient time for us to have a phone call to review the best options and next steps for you to work with an estate planning attorney to get your plan prepared and implemented.