What Is an Irrevocable Grantor Trust?

October 8, 2023
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8 min read

The dozens of different trust instruments and vehicles you can create and maintain can be difficult to keep straight, even for high-net-worth individuals with a lot on the line. As you look at asset protection, estate management, and other goals for your millions, you might come across irrevocable grantor trusts.

At first glance, these might seem like legally airtight and excellent options for asset protection and your own financial peace of mind. But are they, really? Let’s dive deeper into irrevocable grantor trusts.

What is a Grantor Trust?

A grantor trust is any trust where the person who creates the trust is considered to be the owner of the assets and property within the trust for estate tax and income tax purposes. 

In a grantor trust, the grantor may also retain certain controlling or directing powers over the assets in the trust (e.g., they can decide how income made by the trust is spent or invested).

With a trust, a neutral third party called the trustee controls and/or manages the assets within the trust. With many irrevocable trusts, the grantor gives up effective ownership of the assets they put in the trust, so they can’t be forced to use those assets for debt or court payments.

But with a grantor trust, the grantor of the trust is still thought of as the owner of the assets in that vehicle. For example, the grantor of a grantor trust must still report income from the assets in their trust on their yearly tax forms. 

Any assets that pass from the grantor trust to inheritors or beneficiaries are subject to estate taxes, as well.

Grantor trusts can be revocable (changeable) or irrevocable (unchangeable).

What is an Irrevocable Trust?

An irrevocable trust, put plainly, is a trust that can’t be modified or adjusted after it is set up. While there are a few limited cases where it is possible to modify an irrevocable trust after the fact, this trust’s irrevocability is broadly true most of the time.

Say you decide you want to add a beneficiary to your trust so they receive distributions. You can do that with a revocable trust, but not so with an irrevocable trust.

So, What’s an Irrevocable Grantor Trust?

When you put the two concepts together, you get an irrevocable grantor trust. This is an unchangeable grantor trust in which the assets within are still technically owned by the original grantor/settlor.

The only thing the “irrevocable” aspect changes is whether or not you can modify the trust as you desire. With a revocable grantor trust, you can change the trust to add beneficiaries or modify its terms whenever you like.

If you want to change an irrevocable grantor trust, you’ll need to petition a court to do so, plus likely get the approval of all the beneficiaries you previously named. It’s a much more complex process, so it’s best to set up your irrevocable trust with all the beneficiaries and rules you want ahead of time.

Why Use an Irrevocable Grantor Trust?

The broadest use case for an irrevocable grantor trust is estate planning. With such a trust setup, you can make sure your assets are distributed to the right people and in the right amounts upon your death. All the while, you'll pay income and/or state taxes on the assets within. 

You'll also have control over the assets of the trust to at least some extent, which can be beneficial if your purpose is not asset protection.

An irrevocable grantor trust can be useful in any circumstance where you want to put assets into a trust instrument and retain control over them, yet also ensure that the assets can't be modified or changed after the fact.

Imagine a circumstance where you set up an estate planning irrevocable grantor trust. Once you do that, even if you are disabled or unable to make judgments in old age, one of the trust beneficiaries or some other family member can’t modify the trust without your consent.

An irrevocable grantor trust can be a useful security tool for certain risks.

Is an Irrevocable Grantor Trust Ideal for Asset Protection?

That said, an irrevocable grantor trust is not an ideal tool for asset protection (at least as we think of asset protection at Dominion). The core issue is one of control.

Any excellent asset protection strategy will eliminate or mitigate your direct ownership of assets, thereby preventing you from being compelled to give up those assets or use them to pay for things by order of a court, lawyer, or creditor.

To see why an irrevocable grantor trust can be problematic for asset protection, consider this hypothetical:

  • You run a very successful business, but one day, one of your customers decides to sue you for everything you have
  • If the lawsuit is successful, you may have to pay millions of dollars in damages
  • If you still own the assets in your irrevocable grantor trust – which a court will very easily be able to prove, given the level of control you exercise over those assets and the taxes you pay for those assets – they could be vulnerable to claims by the court or the lawsuit plaintiff

If you use an alternative instrument, like an offshore asset protection trust, you can legally tell the judge that you do not have ownership or control over the assets in the trust. Therefore, you can’t be compelled to give those assets up!

More importantly, a Dominion-style asset protection trust will be offshore (i.e., it will be set up in some other jurisdiction or country than your own). That doubles down on your defense – a US court won’t have jurisdiction over an offshore trust, provided it’s drafted properly.

Combined, these layers of legal removal will make it essentially impossible for a lawyer, lawsuit plaintiff, creditor, ex-spouse, or anyone else you can think of to get to your hard-earned money.

Instead of an irrevocable grantor trust, you should look into an offshore asset protection trust with Dominion. Our asset protection trusts are also irrevocable, so you can’t change them after drafting them, but that’s not a problem given the depth of research we perform and the expertise we bring to the drafting table.

When you work with our experts, we’ll ensure your trust is created with legally airtight paperwork completely free from loopholes or exploits that your enemies can take advantage of. 

We'll help you select a jurisdiction that isn't subject to US laws and international statutes, and we'll set you up with a neutral third-party trustee you can rely on for a long time to come. 

Contact Dominion Today

To recap, an irrevocable grantor trust is one where the grantor is considered to be the owner of assets and property in the trust. Since that stands contrary to most asset protection plans, these aren’t the ideal vehicles for preserving your wealth against attacks from creditors and lawyers.

Instead, Dominion’s offshore asset protection trusts are better uses of your time and money. These highly resilient, nigh-impenetrable vehicles are highly effective when they are set up properly, which our lawyers can guarantee. 

On top of that, you’ll have the final say over how the trusts are created, where they are based, and more.

With Dominion, you don’t ever need to worry about giving up control, as our trustee will follow your wishes to the letter. Whether you want to set up an asset protection trust or an irrevocable grantor trust for some other purpose, we may be able to help. Contact one of our representatives today to get started.


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