An irrevocable trust is a trust that cannot be changed unless there is expressed consent from the beneficiary. Once the trust has been established by the grantor, it cannot be altered. Contributions cannot be removed by the grantor. The reason that there are people that choose this type of trust is because of the tax advantages.
Irrevocable trusts can reduce estate taxes. This is done commonly through Irrevocable Life Insurance Trusts where the value of the property is removed from a person’s estates and therefore cannot be taxes when that person dies. The grantor transfers the assets over to the trustee and the beneficiaries of the trust and essentially no longer owns the assets. And, if the asset is no longer owned by the grantor then he or she can no longer be taxed on it.
Another reason that someone might choose an Irrevocable Trust is to protect his or her assets for the grantor and for the beneficiaries. The grantor can set up the trust to provide support to family members or loved ones and all of the trust assets will be out of reach from the creditors of the grantor. Officially, the grantor no longer has any control of the assets. The assets are now part of the trust and can still provide financial support to whoever the grantor chooses to support in the trust.
Many high net worth individuals will choose to establish Irrevocable Trusts. They will set up the trust to benefit charities of their choosing. Many famous wealthy families such as the Carnegies and the Fords have used Irrevocable Trusts for these purposes.