An irrevocable trust is a legal arrangement in which the grantor permanently transfers assets out of their ownership and into the trust. Unlike a revocable trust, once created and funded, an irrevocable trust generally cannot be modified, amended, or terminated by the grantor without the consent of the beneficiaries or a court order.
10 steps across 3 sections
1. Federal Estate Tax Exemption (2026)
- The federal estate/gift tax exemption is $15 million per individual ($30 million per married couple) for 2026, indexed for inflation starting in 2027
- History: The Tax Cuts and Jobs Act of 2017 temporarily doubled the exemption but included a sunset provision that would have halved it on January 1, 2026. The One Big Beautiful Bill Act (signed July 4, 2025...
- Assets transferred to an irrevocable trust are permanently removed from the grantor's estate, and the IRS has confirmed that gifts made using the higher exemption will not be "clawed back" if the e...
2. How It Reduces Estate Tax
- Assets in an irrevocable trust are not included in the grantor's taxable estate at death
- All future appreciation on transferred assets also escapes estate tax
- Example: Transfer $5M to an irrevocable trust today. If it grows to $12M over 20 years, the full $12M (including $7M of appreciation) passes to beneficiaries free of estate tax
- The transfer itself may use part of the grantor's lifetime gift tax exemption
3. Gift Tax Considerations
- Transfers to an irrevocable trust are generally considered completed gifts
- Annual exclusion gifts ($19,000 per beneficiary in 2026) can reduce the taxable gift amount if the trust includes Crummey withdrawal powers
- Gifts exceeding the annual exclusion use the lifetime exemption
Common Mistakes
- Retaining too much control
- Not actually funding the trust
- Ignoring the gift tax consequences
- Failing to plan for the 5-year Medicaid lookback
- Choosing the wrong trustee
Pro Tips
- The $15M exemption is now permanent, but future legislation could reduce it
- Consider a trust protector
- Decanting provisions
- Annual Crummey notices
- ILIT strategy:
Sources
- Irrevocable Trust: What Is It and How Does It Work (MetLife)
- Top 5 Strategies to Protect Your Personal Assets from Lawsuits in 2026 (UltraTrust)
- IRS Changes Rules on Irrevocable Trusts (Brown & Jensen)
- Reviewing Your Irrevocable Trust: Why Updates Matter (Sessa & Dorsey)
- Assets in Irrevocable Trusts and Stepped-Up Basis (MCB CPA)
- Irrevocable Trusts: What Beneficiaries Need to Know (J.P. Morgan)
- How to Handle Irrevocable Trust Assets Tax-Efficiently (Kiplinger)
- Revocable vs. Irrevocable Trust for Asset Protection (UltraTrust)
- Trust and Estate Taxation: Key Strategies (Brister Tax Law)