An irrevocable trust is a trust that can't be amended or modified. However, like any other trust an irrevocable trust can have multiple beneficiaries. The Internal Revenue Service allows irrevocable trusts to be created as grantor, simple or complex trusts. Revocable trusts that allow the grantor to make changes during his lifetime may change to irrevocable trusts upon the grantor's death. Whether a trust is revocable or irrevocable depends upon individual state law and the trust terms.
According to the IRS, "a trust involves the creation of a fiduciary relationship between a grantor, a trustee, and a beneficiary for a stated purpose." A trust is essentially a legal agreement in which assets and property are held by one party for the benefit of another. A trust follows the terms under which it was created; however, those terms are defined by the person who creates the trust, who is known as the grantor. Therefore it is up to the grantor, whether or not a trust is revocable or irrevocable.
Trusts are often used in estate planning to prevent the assets from going through the probate process. During his lifetime, the grantor of an revocable trust can place assets within it and have total control as to buying, selling, investing and withdrawals. He can change or add additional beneficiaries to the trust. Upon the grantor's death, the trust is irrevocable, and the assets pass to the named beneficiaries. For estate-planning purposes, passing assets to beneficiaries through a trust takes far less time than assets going through probate. The probate process can take months or even years, while assets passing through a trust can be distributed within weeks or a few months. Also, the probate process is a matter of public record, while the distribution of a trust's assets is done in private.
Employer Identification Numbers
The IRS requires an irrevocable trust to have its own nine-digit employer identification number (EIN). If the grantor of the trust has several trusts established, such as separate entities with children or grandchildren as beneficiaries, each trust must have its own EIN.
One common reason for establishing an irrevocable trust is to leave money to heirs even if the person must go into a nursing home, the cost of which quickly consumes assets. Medicaid does not count the principal in an irrevocable trust as a resource, although the same is not true of a revocable trust. The principal cannot be payable to the owner or spouse. Usually, the irrevocable trust is drafted so that income from the trust is payable to the owner, and this income is counted for Medicaid purposes.