Individuals may wish to create a trust that is irrevocable (meaning that it cannot be revoked or terminated for any reason) for a number of reasons including :
- To remove assets from the client’s estate
- To make charitable contributions
- To protect the assets from the beneficiaries’ creditors
- To protect the assets from the client’s creditors
- To meet a funding obligation required by a court order, such as a divorce decree that requires a spouse to create a trust for the benefit of children
- To fund corporate obligations, such as for deferred compensation.
When designing a trust to protect assets from creditors under Colorado law, one should be aware that trusts for the benefit of a grantor (the individual who “creates” the trust) are void against the grantor’s creditors existing at the time the trust is established. This means that if a grantor creates an irrevocable trust at the time he or she has a creditor issue either pending, threatened or expected, the trust’s assets will not be protected from the grantor’s creditors. Note, however, that creditors of the other beneficiaries (such as the grantor’s spouse and children) will not be able to go after the trust’s assets.
An irrevocable trust differs from a revocable living trust in that in an irrevocable trust, the grantor may not serve as a trustee.