Quora Answer: Why Would Someone Want to Create an Irrevocable Trust as Opposed to a Revocable Trust?

The following is my answer to a Quora question: “Why would someone want to create an irrevocable trust, as opposed to a revocable trust?”

Unlike a revocable trust, an irrevocable trust is a distinct legal entity from the grantor.  All assets managed under the trust, like that of a company, is taxed after expenses, not on gross earnings.  This mitigates the tax liability of the grantor or settlor.

Secondly, the assets managed under trust are protected from creditor action upon the grantor since they are considered distinct from his personal assets and liabilities.  This makes it useful for preserving an estate even when a business venture fails, or the grantor assumes liabilities that are more than his stated net worth.

Finally, since the trust is a distinct legal entity, assets under trust are not ordinarily part of the marital estate.  This is important in the event of an acrimonious or contentious divorce.