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Irrevocable trust
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Depends on youExperts differ; the right answer depends on your situation.
A trust you generally cannot change or revoke once signed, used to move assets out of your taxable estate or protect them.
See it on the Personal Finance & Estate map →How it works
You give assets to a trustee for beneficiaries; in exchange, future growth can escape estate tax, and assets may be shielded from creditors or Medi-Cal counting. Variants on this map include ILITs, SLATs, special-needs and charitable remainder trusts. Gifts use your lifetime exemption ($15 million in 2026) and usually lose the step-up in basis at death. Trusts that pay their own tax reach the top 37% bracket at about $16,000 of income. California law allows some later fixes through decanting or court petitions.
Why it matters for you
Depends on you. With a $15 million per-person exemption, most families no longer need one for tax; it still matters for very large estates, disability, charity or asset protection.
Rules, limits and sources (2026)
IRC Secs. 2036–2042 decide what stays in your estate; IRS Rev. Rul. 2023-2 confirmed no basis step-up for gifted trust assets. California Probate Code Secs. 15403–15404 and the 2019 decanting act govern changes.
Watch out for
With the 2025 law canceling the scheduled exemption cut, how many existing irrevocable trusts will be decanted or unwound, and how the IRS will view it, is unsettled.
Inside this (6)
Connections (8)
▸Irrevocable life insurance trust (ILIT) is a type of Irrevocable trustStandard practice
How they connect
An ILIT is an irrevocable trust built around one asset: life insurance. Because you permanently give up control, the policy isn't yours for estate-tax purposes, which is the whole point. It follows every irrevocable-trust rule: an independent trustee, its own tax ID and terms you can't easily change.
When it applies
A staple of estate plans for decades, drafted by estate attorneys working with insurance advisors for families facing estate tax.
How sure?
IRC Sec. 2042 excludes a policy when the insured holds no 'incidents of ownership', which the irrevocable structure provides.
Watch out for
Which powers the insured can keep, such as replacing the trustee, without pulling the policy back into the estate is technical; drafting errors are a real risk.
▸Family LLC / family limited partnership is often paired with Irrevocable trustStandard practice
How they connect
Families often put real estate into an LLC, then gift or sell non-voting LLC interests to irrevocable trusts for children. The LLC keeps management with the parents; the trust holds the growing ownership outside their estates, and the minority-interest discount lets more value move per dollar of exemption.
When it applies
Common in real estate families, often combined with GRATs or sales to grantor trusts; attorneys, appraisers and CPAs coordinate it.
How sure?
Tax Court cases such as Estate of Powell (2017) and many IRS audits examine this exact pairing; qualified appraisals document the discounts.
Watch out for
How far discounts survive IRS challenge is case by case; in California, each transfer must also be tracked against Prop 13's change-in-control rules.
▸Special-needs trust is a type of Irrevocable trustStandard practice
How they connect
A special-needs trust is irrevocable so neither the beneficiary nor SSA can treat its money as theirs; the trustee alone decides payments for supplemental needs. A third-party version can sit inside parents' revocable trust and become irrevocable at their death; a first-party version must be irrevocable from the start.
When it applies
Created for disabled children, siblings or adults on benefits, or after a personal-injury settlement; drafted by special-needs attorneys.
How sure?
SSA's POMS rules count revocable trusts as the beneficiary's resources; federal law requires first-party trusts to repay Medicaid (Medi-Cal) at death.
Watch out for
Drafting must track changing SSA rules; for example, SSA stopped counting food as in-kind support in 2024, so trustee-paid groceries no longer reduce SSI.
▸Charitable remainder trust (CRT) is a type of Irrevocable trustStandard practice
How they connect
A CRT is an irrevocable trust split between you and charity: you take the income stream, the charity takes the remainder. Because the trust is tax-exempt, it can sell appreciated property without immediate tax. Once funded, you can't take the principal back, though you can usually change which charity receives it.
When it applies
Set up by donors with highly appreciated stock or real estate, often before a planned sale, with an estate attorney and CPA.
How sure?
IRC Sec. 664 and Treasury regulations define charitable remainder annuity and unitrusts; each trust files Form 5227 every year.
Watch out for
Whether a trust can safely hold mortgaged real estate, or sell after a deal is already agreed, is technical; timing errors can trigger tax.
▸Medicaid (Medi-Cal) planning & the look-back period may use Irrevocable trustDepends on you
How they connect
To qualify for Medi-Cal long-term care without spending down, some families move assets into an irrevocable trust the parent can't reach. Done early enough, those assets don't count toward the limit, reinstated at $130,000 for one person in 2026. Done within the look-back window, the transfer can trigger a penalty period.
When it applies
Arranged by California elder-law attorneys for aging parents; interest renewed after the asset test returned in January 2026.
How sure?
Federal Medicaid law (42 U.S.C. Sec. 1396p) governs trust and transfer rules; California's DHCS applies them to Medi-Cal.
Watch out for
How DHCS will apply the look-back after 2026, and whether spend-down or other tools fit better, is unsettled; ask an elder-law attorney.
▸Irrevocable trust can keep future growth from using up Estate & lifetime gift exemption ($15M in 2026)Depends on you
How they connect
Giving assets to an irrevocable trust uses exemption at today's value; all later growth happens outside the estate and never counts against it. The trade-offs: the giver gives up control, and heirs lose the step-up in basis at death, so built-in gains may be taxed later.
When it applies
Used by families with estates near or above the exemption, often through dynasty trusts, spousal lifetime access trusts (SLATs) and grantor trusts.
How sure?
IRC Secs. 2001, 2010 and 2511; Form 709 reports the gift; courts and the IRS have tested these structures for decades.
Watch out for
With a $15 million exemption, whether estate-tax savings beat losing the step-up is a case-by-case call for an estate attorney and CPA.
▸Spousal lifetime access trust (SLAT) is a type of Irrevocable trustStandard practice
How they connect
A SLAT is an irrevocable trust with one special beneficiary: the donor's spouse. Gifts to it use the donor's lifetime exemption and move future growth out of both estates, yet the couple keeps indirect access through distributions to the spouse. It carries every irrevocable-trust trade-off: lost control, no basis step-up, permanence.
When it applies
Widely created in 2020–2025 by couples rushing to use the exemption before the scheduled 2026 cut, which the 2025 law canceled.
How sure?
IRC Sec. 2036, Sec. 2041 and the grantor-trust rules govern estate inclusion; gift-tax returns (Form 709) report the funding.
Watch out for
With $15 million exemptions per person, whether new SLATs still make sense for estates near that level is debated among planners.
▸Estate freezes: GRATs & sales to grantor trusts (IDGTs) are advanced forms of Irrevocable trustDepends on you
How they connect
GRATs and IDGTs are irrevocable trusts built to be 'grantor trusts': ignored for income tax, so the creator keeps paying the trust's tax, yet outside the estate for estate tax. That mismatch between code sections lets them move growth to heirs more efficiently than an ordinary irrevocable trust.
When it applies
Grantor-trust rules date to the 1954 code; attorneys developed 'defective' trusts as freeze tools from the 1980s onward.
How sure?
IRC Secs. 671-679, 2036 and 2702; IRS Revenue Ruling 85-13 treats sales to one's own grantor trust as nontaxable.
Watch out for
Whether Congress will close the income-tax/estate-tax mismatch that makes these work is open; 2021 drafts tried, then dropped it.