What is a defining characteristic of an irrevocable trust?

What is a defining characteristic of an irrevocable trust?

• A. It can be modified by the trustor at any time
• B. It cannot be modified or terminated by the trustor after creation
• C. It allows for investment flexibility
• D. It is automatically revoked upon the trustor's death

Answer: (B)

An irrevocable trust is defined by the fact that it cannot be modified or terminated by the trustor after its creation. This characteristic is crucial because it establishes the trust as a separate legal entity, and once assets are transferred into an irrevocable trust, they are no longer in the control of the trustor. This irrevocability provides benefits such as asset protection, tax advantages, and ensuring that the trust assets are distributed according to the trustor's wishes, rather than being influenced by their future decisions or changes in circumstances. The inability to modify the trust allows for a greater sense of security for beneficiaries, as they can rely on the terms as they are set without the risk of the trustor altering them later. This stability is particularly important in estate planning, where the trustor wishes to provide for beneficiaries while also potentially shield assets from creditors or reduce estate taxes.

An irrevocable trust is defined by the fact that it cannot be modified or terminated by the trustor after its creation. This characteristic is crucial because it establishes the trust as a separate legal entity, and once assets are transferred into an irrevocable trust, they are no longer in the control of the trustor. This irrevocability provides benefits such as asset protection, tax advantages, and ensuring that the trust assets are distributed according to the trustor's wishes, rather than being influenced by their future decisions or changes in circumstances.

The inability to modify the trust allows for a greater sense of security for beneficiaries, as they can rely on the terms as they are set without the risk of the trustor altering them later. This stability is particularly important in estate planning, where the trustor wishes to provide for beneficiaries while also potentially shield assets from creditors or reduce estate taxes.