Trusts

What Happens to an Irrevocable Trust When the Grantor Dies?

By
Dominion
Updated:
October 8, 2023
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8 min read
Contents

The right irrevocable trust could be the perfect wealth protection and preservation instrument for high-net-worth individuals like entrepreneurs, business owners, doctors, and so on. 

If you're looking to defend your estate and wealth from hungry creditors and aggressive lawsuit plaintiffs, an irrevocable trust could protect those assets from legal threats and more.

But what if you pass away after setting up your irrevocable trust? Alternatively, what if you are a beneficiary of another irrevocable trust and want to know what happens if the grantor dies? In many cases, it may not be as drastic of a shift as you expect.

Irrevocable Trusts Explained

An irrevocable trust, put simply, is a trust that can’t be modified by the grantor after the trust is finalized or set up. The grantor is the individual or entity that creates the trust with the assistance of attorneys. They are also the entity that names the beneficiaries, appoints the trustee, etc.

An irrevocable trust is contrasted with a revocable trust. With a revocable trust, you or the grantor can modify the terms of the trust, name different beneficiaries, and make other modifications to the trust document with licensed attorneys at your side. An irrevocable trust does not allow this (except under very specific, limited circumstances).

Why Use an Irrevocable Trust?

At first glance, you might think that an irrevocable trust is too limiting. However, irrevocable trusts have several important use cases and benefits.

For instance, say that you are a successful doctor or other medical specialist. Unfortunately, you are sued by the family members of a patient you previously treated. Whether or not they are correct, your wealth could potentially be at risk if the court rules against you.

However, if you’ve already stored most of your wealth in an asset protection trust (a type of irrevocable trust in which Dominion specializes), even if the lawsuit plaintiff is successful, they can’t legally order you to give up funds or property from that trust.

That’s because your trust can’t be changed by you. So, if a court tells you to change your trust or take things out of it, you can legally tell them that’s impossible. 

Provided your trust is set up properly and is based in the right jurisdiction (both of which are things that Dominion will take care of), your assets will be essentially untouchable.

When the Grantor Dies, What Happens?

In most example situations in which an irrevocable trust will be useful, you or the grantor are alive and able to benefit from the trust and its provisions. But what if the grantor for an irrevocable trust dies?

In that case, a few different things can occur depending on whether or not the grantor is also the trustee or not.

If the Grantor is the Trustee

Sometimes, the grantor of a trust may also act as the trustee. This might make sense for a few limited trust cases, but it’s not a wise idea for irrevocable trusts, especially asset protection trusts.

If you are the grantor and the trustee for a trust instrument, it means you formed the trust and now administrative all the trust assets within. If you pass away, the trustee status passes to the individual or entity named the “successor trustee.”

When you create your trust with your attorneys, you’ll need to fill out a Declaration of Trust. That document will include a section about successor trustees. 

For instance, if you named your spouse as the successor trustee, then you pass away as both the grantor and the primary trustee, control and administration of the trust will pass to your spouse upon your death.

Note that this rarely occurs, at least if you create your trust with knowledgeable, experienced specialists. If you are the grantor and the trustee of your irrevocable trust, all you do is make your trust more vulnerable to creditors, lawsuit plaintiffs, and other legal threats.

It's safe to say that if you are the grantor and the trustee of your irrevocable trust, you’ve already messed up! 

If the Trustee is Someone Else

If the trustee is someone else, nothing necessarily needs to happen to the irrevocable trust. It all depends on the trust instrument and what provisions are included.

For instance, if there is a provision or command in the trust documents that is meant to kick in when the grantor dies, whatever is set in the trust will follow. Say you create an irrevocable trust for the benefit of your grandchildren so you can pass down your estate with reduced taxes.

In the trust documents, you state that, upon your death, the trustee is meant to distribute certain key assets and real estate to each of your grandchildren. Therefore, when you, the grantor, pass away, the trustee does just that.

But this doesn’t have to be the case. If your irrevocable trust doesn’t include any provisions for changes to the trust administration upon the grantor’s death, nothing happens.

What Happens with a Revocable Trust if the Grantor Dies?

The exact same process happens with a revocable trust if the grantor dies. If you are the grantor and the trustee, the trust administration passes to the successor trustee. If you are not the trustee, your death as the grantor may or may not have any impact on the trust, depending on what it's for, how it's drafted, etc.

The Importance of Strong Trust Setup

All that said, many high-net-worth individuals do worry about the status of their trust and their estates once they pass away. For instance, maybe you are in your golden years and trying to prepare your estate for your descendants. 

It can be easy to wonder whether your trust will be truly managed properly or if everything will break down upon your passing.

Fortunately, you can alleviate these concerns by working with the right trust specialists. For example, at Dominion, we specialize in asset protection trust setup, so we work with high-net-worth individuals just like you to protect their wealth now and in perpetuity.

If you draft your trust properly, and if you appoint the right trustee, you don’t have to worry about your trust falling to pieces or no longer protecting your assets once you die. 

Instead, you’ll be able to rest assured that your assets remain safe and secure long after you pass away for the benefit of your grandchildren, spouse, or any other beneficiaries you happen to name.

Remember, nothing needs to happen to your irrevocable trust if you die. In fact, many irrevocable trusts are set up specifically not to change when the grantor dies. The whole point of an irrevocable trust is to remove control from the grantor – once your trust is set up, your role in the trust is technically over!

Contact Dominion Today

At the end of the day, only the right legal experts can help you set up an ironclad, airtight irrevocable trust for you and your beneficiaries. 

An asset protection trust from Dominion will protect your wealth against frivolous lawsuits, high tax fees, and other potential hazards while also operating as a wealth-generation vehicle for your future needs.

When you work with us, we’ll go through all the contingencies and possibilities associated with your irrevocable trust, including if you pass away. 

The trust we set up will continue to run smoothly like a Swiss watch – it’s a core part of the peace of mind we promise to each of our clients. Get in touch with one of our representatives today to learn more.

Dominion

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