An irrevocable land trust is different from a revocable trust. The difference between the two is that once the grantor or the trust owner signs his assets and property over to the beneficiary, he or she has no say in the trust without the beneficiary's permission.
This means that the grantor cannot modify or get rid of the land trust without the permission of the beneficiary once he or she signs the paperwork into the beneficiary's name. This is unlike a revocable trust that the grantor still owns all rights to even after he or she signs everything over to the beneficiary.
What is the Reason for an Irrevocable Land Trust?
The main reason for setting up this type of land trust is to remove all ownership of the assets and property from the original owner. It is mainly for estate and tax purposes. This means that the grantor will no longer be liable for tax payments on his or her assets and property. However, the downside of this is that he or she will not receive tax benefits from the assets and property once the ownership of them are signed over to the beneficiary.
The Benefits of an Irrevocable Land Trust
There are a few benefits to having an irrevocable land trust signed over to the beneficiary of your choice. They include:
- Protection from Creditors. This is especially true if you work in a type of business that puts you at risk of certain lawsuits. However, this also means that you will no longer own the assets and property once you sign it over to your land trust and beneficiary. If you are fine with this, then you will be protected for the rest of your life.
- Protection from the IRS. This is the same as how it can protect you from creditors.
- Access to government benefits. On its own, a land trust won't keep you from receiving necessary benefits (SNAP, Medicaid, etc.) This is because certain assets and property you own can keep you from receiving benefits from the government.
Types of Irrevocable Trusts
Irrevocable trusts come in two different types:
- Living Trusts. Living trusts are created by the person while he or she is still alive. They are also called intervivo trusts. There are a few different kinds of these trusts and they include irrevocable life insurance trusts, lifetime gifting trusts, spousal lifetime access trusts, and charitable trusts.
- Testamentary Trusts. This type of trust is always irrevocable since it will not be funded until after the person is passed away. The terms of this type of trust is set in the deceased person's will and will be disclosed after he or she is gone. Although once the person who made the testamentary trust is gone this type will turn irrevocable and cannot be modified except by the trustee or beneficiary, the grantor can modify or even end the trust before he or she passes away.
To learn more, check out our article, Does A Revocable Trust File A Tax Return?