Trust Purposes

• An irrevocable living trust can serve many purposes. Trusts, in general, are often used to (1) hold property, (2) have property managed by a professional trustee, (3) avoid probate, and (4) provide income tax benefits to the trustor. Probate is the process by which a will goes through the court system when you die. Probate can often be time consuming and expensive, especially if it is contested. Because property placed in a living trust belongs to your trust, and not you personally, the property in the trust does not pass by your will, and therefore does not go through probate. Finally, an irrevocable trust can provide significant tax advantages because the trust owns the property, not you, so any income produced by the property in the trust is taxed to the trust, rather than to you individually. If you have a high income, then you are in a high tax bracket--but your trust is probably in a lower tax bracket, which results in tax savings to you.
  
  

Trustor Creates the Trust

• The trustor is the person who creates a trust and places property in the trust. For example, Joe Bob might own a 5-acre piece of real estate, and he can put that 5-acre parcel into the "Irrevocable Joe Bob Trust."
  
  

Naming the Trustee

• After deciding what property to include in the trust, Joe will then appoint a trustee to manage the property and handle the affairs of the trust. A trustee can be anybody Joe wants, but often the trustee is a professional person or business, such as an attorney or a bank. The trustor (Joe Bob) provides instructions to the trustee on how to handle the trust property (the 5-acre parcel). For example, Joe Bob could instruct the trustee to simply hold on to the property and never lease it or sell it; or Joe Bob could instruct the trustee to put the property to its best use, which might mean subdividing and selling it off piece by piece, or developing it and leasing it out piece by piece, or leasing the entire empty parcel. The trustee will have some discretion on how to carry out the terms of the trust.
  
  

Choosing Beneficiaries

• When Joe Bob, the trustor, creates the trust, he will name at least one beneficiary, though he can name more than one if he wants to. Often, he will name himself as a beneficiary, plus some other people, such as his wife and children, if he has any. He could also name a primary beneficiary, and then name contingent beneficiaries in case the primary beneficiary passes away. For example, he will name himself, Joe Bob, as the primary beneficiary, and he will name his wife as the contingent beneficiary in case he, Joe Bob, dies, and if his wife dies, then he will name his children as second-level contingent beneficiaries.
  
  

Irrevocable

• When a trust is irrevocable, this means the trustor (Joe Bob) does not have the power to unilaterally terminate the trust. This means Joe Bob must be very careful in how he sets up the trust, because he loses control over the property that goes into the trust, and he can't get it back on his own. Typically, to terminate an irrevocable trust, the trustee and all of the beneficiaries must consent to the termination of the trust. Often, though, to gain tax advantages by using a trust, you must make the trust irrevocable. So there is some risk, but also some reward, for making a trust irrevocable.