What Is An Irrevocable Trust?

A trust is a type of legal entity recognized by the IRS, and therefore it needs an Employer ID Number (EIN).  According to the IRS-EIN-Tax-ID website, it is state law that establishes the trust, but the federal government taxes it.  There are various types of trusts that afford different rights to the grantor and beneficiaries.  The grantor is the person who sets up the trust, and the beneficiaries are the people authorized to use the money.  A classic example is where the grantor is an elderly person and the beneficiaries are his children who will inherit his money.

How to Set Up a Trust

To establish a trust, you must first apply for an EIN for the trust; you can apply for this tax ID online.  It is the same process as getting a church tax ID number or for establishing a business.  After that, you must decide whether yours will be a revocable or irrevocable trust.

Revocable vs. Irrevocable Trusts

U.S. law considers a trust a legal entity, separate from its grantor and beneficiaries.  Once the grantor transfers assets to the trust, they belong to the trust, not the person.  In an irrevocable trust, the grantor cannot do any financially dealings with the assets in the trust without the beneficiaries’ permission.  By contrast, a revocable trust gives the grantor a lot more flexibility.  The grantor can remove assets from the trust as he chooses.  He can also change where he invests the money in the trust.

Any Kind of Trust is Better Than No Trust

Both irrevocable and revocable trusts have a clear advantage over just writing a will.  A will has to go through probate in the courts before the beneficiaries can receive any money.  Trusts offer more privacy and a lot less stress and expense.

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