27 Jun What Is an Irrevocable Trust?
An Eldersmart Guide to Irrevocable Trusts for Illinois Residents
An irrevocable trust is a legally binding agreement where the grantor permanently gives up ownership and control of assets—such as property, investments, or life insurance—by transferring them into a trust. Once established, the terms of the trust generally cannot be altered or revoked, except in limited circumstances, such as court approval or built-in flexibility provisions.
Unlike a revocable trust, which allows the grantor to retain full control during their lifetime, an irrevocable trust removes the assets from the grantor’s estate, offering potential protection from creditors, lawsuits, estate taxes, and long-term care spend-down requirements.
Why Illinois Families Use Irrevocable Trusts:
1. Estate Tax Planning
Illinois imposes a state estate tax on estates over $4 million. An irrevocable trust can help reduce the size of your taxable estate by removing appreciating assets and life insurance proceeds, potentially saving your heirs thousands—or even millions—in estate taxes.
2. Asset Protection
Assets in an irrevocable trust are no longer legally owned by you. That means they are generally shielded from lawsuits, judgments, and creditors—making these trusts an effective tool for protecting wealth.
3. Medicaid Planning for Long-Term Care
By transferring your home or savings into a Medicaid Asset Protection Trust (MAPT) at least five years before applying for Medicaid, you may protect those assets from being counted against Medicaid eligibility rules. Illinois follows the federal 5-year look-back period.
4. Avoiding Probate
Assets held in an irrevocable trust bypass the probate process, allowing them to pass privately and efficiently to beneficiaries.
5. Supporting Loved Ones
Irrevocable trusts can be customized for specific needs, such as:
- Special Needs Trusts to protect eligibility for government benefits.
- Irrevocable Life Insurance Trusts (ILITs) to keep insurance proceeds outside the estate.
- Dynasty Trusts to protect multigenerational wealth.
How an Irrevocable Trust Works
| Role | What They Do |
|---|---|
| Grantor (Settlor) | Creates and funds the trust. Gives up control over the assets. |
| Trustee | Manages the trust assets and follows the trust’s terms. Can be a person or an institution. |
| Beneficiaries | Receive income or principal from the trust, depending on its terms. |
Once the trust is funded, the assets no longer belong to the grantor. This is what allows the trust to provide asset protection and estate-tax benefits.
**Important: Once you place assets in an irrevocable trust, you usually can’t take them back or change the terms. Make sure you fully understand the long-term implications before moving forward.
Pros and Cons of Irrevocable Trusts
| ✅ Advantages | ❌ Disadvantages |
| Removes assets from taxable estate | Loss of control over the assets |
| Protects against lawsuits & creditors | Cannot easily change terms or beneficiaries |
| Helps with Medicaid eligibility (after 5 years) | Legal setup and trustee fees can be costly |
| Avoids probate, keeps affairs private | Income tax reporting may be more complex |
Setting Up an Irrevocable Trust in Illinois
- Clarify Your Goals: Are you planning for Medicaid? Avoiding taxes? Protecting heirs?
- Hire an Illinois Elder-Law or Estate-Planning Attorney: State law governs trust rules and Medicaid timing.
- Choose Your Trustee: Select a trustworthy person or a professional fiduciary.
- Draft and Sign the Trust: Ensure proper legal formatting and include flexibility provisions like a trust protector.
- Fund the Trust: Retitle assets into the name of the trust. This includes real estate deeds, investment accounts, & insurance policies.
- Plan for the Medicaid Look-Back: For MAPTs, transfers must occur at least five years before applying for benefits.
Tax Considerations
Depending on how your trust is structured:
- The trust itself may file its own income tax return.
- Or, the beneficiaries may receive a Schedule K-1 to report income they’ve received from the trust.
For example, if the trust earns interest or dividends, that income may be taxed at high trust tax rates unless it’s distributed to beneficiaries.
Consult with a tax advisor when creating and maintaining an irrevocable trust.
Frequently Asked Questions
Can I change an irrevocable trust?
Only in limited cases. If all beneficiaries agree, and a court finds the change aligns with the trust’s purpose, modification may be allowed under the Illinois Trust Code (760 ILCS 3/411). Some trusts include a “trust protector” who can approve changes.
Will it protect my house from nursing-home costs?
Yes, if it’s placed into a properly drafted Medicaid Asset Protection Trust at least five years before applying for Medicaid.
Who pays taxes on the trust?
Irrevocable trusts can be structured in different ways. Some trusts pay their own taxes; others pass income to beneficiaries, who report it on their personal returns using a K-1 form.
Is an irrevocable trust right for me?
It depends on your goals. These trusts are especially valuable for:
- People with estates over the $4 million Illinois tax exemption
- Those preparing for long-term care
- Families concerned about lawsuits or creditors
- Parents of disabled children or vulnerable adults
Eldersmart Tips
- Start Early – Especially for Medicaid or estate-tax planning.
- Keep Access to Cash – Don’t put every asset into the trust; you’ll need liquidity.
- Review Insurance – Update your homeowner’s or umbrella policy if you move your home into a trust.
- Coordinate Your Will – A “pour-over” clause can transfer remaining assets to the trust after death.
Bottom Line
An irrevocable trust can be a powerful tool for protecting your assets, minimizing taxes, and planning for long-term care, but it comes with serious trade-offs. It’s not just about moving money—it’s about relinquishing control.
If you live in Illinois and are considering an irrevocable trust, talk to an experienced elder-law or estate-planning attorney who understands both state and federal rules. Eldersmart is here to help you make informed decisions that secure your legacy.
Next Steps: Protect What Matters Most
Setting up an irrevocable trust is a big decision—but it can be one of the most powerful ways to protect your assets, plan for long-term care, and secure your family’s future.
At ElderSmart, we’ve spent over 30 years helping Illinois families create custom trust strategies that balance protection, flexibility, and peace of mind.
Whether you’re planning for Medicaid, managing a taxable estate, or safeguarding loved ones, we’ll help you make informed, confident choices.
Contact ElderSmart today for a confidential consultation—and take the next step toward protecting what you’ve built.
Learn more about our Elder Protection Trust
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