An Irrevocable Trust is a trust that cannot be changed except in very limited circumstances. Many trusts remain subject to modification by the person or persons who created it. “Revocable trust,” “living trust,” and “inter vivos trust” are all terms that refer to the “changeable” type of trust. Unlike those trusts, irrevocable trusts are NOT readily subject to change. Irrevocable trusts can occur in many circumstances, but the most common are trusts that own life insurance and trusts that hold a deceased person’s property.
A life insurance trust is often called an “ILIT,” which just means “Irrevocable Life Insurance Trust.” The trust’s creator does not own the policy and does not act as trustee. The insurance is usually used to pay estate taxes after the trust creator dies.
A trust that holds a deceased person’s property can have several names. A “testamentary trust” is an irrevocable trust that was created through the deceased person’s Will. If a person had a revocable trust during his lifetime, then the portion holding the deceased person’s property usually becomes irrevocable upon that person’s death. These types of trusts (or trust shares) might be called “bypass trust,” “marital deduction trust,” “exemption trust,” “QTIP trust,” or by some other name. These are different kinds of trusts, but they all refer to property owned by a trust creator that has died and they are almost always all irrevocable.
A revocable trust does not have to file its own tax returns and is taxed to the creator(s) and reported on the creator’s personal tax return. However, an irrevocable trust must generally file a separate tax return and must obtain its own “TIN” or “taxpayer identification number.” A TIN can be applied for through the IRS website and is similar to a social security number or the EIN of an employer.