Irrevocable Trusts: Types & Uses

An irrevocable trust is one the settlor cannot revoke, amend, or withdraw property from after execution. It can still be modified or terminated by consent of the settlor and all beneficiaries, by consent of the beneficiaries with court approval, or by a court (20 Pa.C.S. §§ 7740.1, 7740.2). That permanence is the point. It is what separates an irrevocable trust from a revocable (living) trust, and it is what makes irrevocable trusts useful for asset protection, tax planning, and Medicaid eligibility.

If you have read our overview of trusts in Pennsylvania , you know that revocable trusts do not save taxes and do not protect assets from creditors. Irrevocable trusts can do both, within limits: under 20 Pa.C.S. § 7745(2), a settlor's creditors can reach the most that the trust can distribute to or for the settlor. The cost is control. Once you transfer property into one, you give up control. Understanding when that tradeoff is worth it is the entire analysis.

How Pennsylvania Law Treats Irrevocable Trusts

Pennsylvania’s Uniform Trust Code (20 Pa.C.S. Ch. 77, substantially amended by Act 64 of 2024) governs most express trusts created or administered in the Commonwealth. Several provisions are particularly important for irrevocable trusts:

Spendthrift protection (20 Pa.C.S. § 7742): A spendthrift provision in an irrevocable trust generally prevents the beneficiary ’s creditors from reaching trust assets before distribution, subject to the exceptions in § 7743 (for example, child support and support orders, certain service providers, and claims of the United States or the Commonwealth). Pennsylvania presumes that a spendthrift provision constitutes a “material purpose” of the trust (§ 7740.1(b.1)), making it harder for beneficiaries to terminate the trust by their own consent, although the settlor and all beneficiaries together can still terminate or modify it under § 7740.1(a).

Modification limits (§ 7740.1): An irrevocable trust can be modified by consent of the settlor and all beneficiaries, or by all beneficiaries alone if the court finds the modification is not inconsistent with a material purpose. If some beneficiaries will not consent, the court may approve only if the trust could have been modified had everyone consented and the nonconsenting beneficiaries’ interests will be adequately protected. Consent is not the only path to modification, as the next section explains.

Court modification (§ 7740.2): Even without consent, a court can modify an irrevocable trust if unanticipated circumstances have arisen since creation and the modification furthers the trust’s purposes.

Types of Irrevocable Trusts

Irrevocable Life Insurance Trust (ILIT)

An ILIT holds life insurance policies outside your taxable estate. The trust (not you) owns the policy, so the death benefit is generally not included in your estate for federal estate tax purposes, provided you keep no incidents of ownership and did not transfer an existing policy to the trust within three years of death. For Pennsylvania inheritance tax, all proceeds of insurance on the life of the decedent are exempt under 72 P.S. § 9111(d).

ILITs require careful administration. Premium payments are treated as gifts to the trust, so the trustee must issue “Crummey notices” to beneficiaries giving them a temporary right of withdrawal. This qualifies the gifts for the annual gift tax exclusion.

Medicaid Asset Protection Trust (MAPT)

A MAPT is designed to remove assets from Medicaid’s eligibility calculation. A transfer within the 5-year lookback period can bring a penalty period. Whether the trust protects anything also depends on its terms: under 42 U.S.C. § 1396p(d)(3)(B)(i), any part of an irrevocable trust from which payment could be made to or for the individual under any circumstances counts as the individual’s resource, and payments to or for the individual from that part count as income. A MAPT therefore generally limits what the settlor may receive, and a settlor who keeps a right to trust income risks having that income and the portion of the trust from which that income could be paid counted as a resource. See our Medicaid planning strategies page for details on timing and structuring.

Intentionally Defective Grantor Trust (IDGT)

An IDGT is irrevocable for estate tax purposes but intentionally “defective” for income tax purposes, meaning the grantor continues to pay income taxes on the trust’s earnings. This allows the trust to grow tax-free (since the grantor’s tax payments are not treated as additional gifts), while removing the assets from the grantor’s estate. IDGTs are commonly used in tandem with installment sales to transfer appreciating assets.

Grantor vs. Non-Grantor Trusts

The distinction matters for income tax. A grantor trust is one where the settlor retains enough control that the IRS treats the trust’s income as the settlor’s (IRC §§ 671 to 679). A non-grantor trust is a separate taxpayer that files its own return (Form 1041) and pays tax at compressed rates, reaching the highest federal bracket at just $16,000 (2026). For Pennsylvania purposes, non-grantor trusts pay the flat 3.07% income tax on undistributed income.

Spendthrift Trusts

Any irrevocable trust can include a spendthrift provision (20 Pa.C.S. § 7742), but trusts designed primarily to protect a beneficiary from creditors or from their own spending habits are commonly called spendthrift trusts. Pennsylvania’s spendthrift protection is substantial: creditors generally cannot attach a beneficiary’s interest before distribution. Exceptions include a judgment or court order for support or maintenance held by the beneficiary’s child (reaching income and principal) or by any other person (reaching income only), a judgment creditor who provided services for the protection of the beneficiary’s interest, and claims of the United States or the Commonwealth to the extent federal or state law provides (20 Pa.C.S. § 7743(b)). Whether or not a trust has a spendthrift provision, a judgment creditor of the settlor of an irrevocable trust may reach the maximum amount that can be distributed to or for the settlor’s benefit (§ 7745(2)).

Special Needs Trusts (SNTs)

We cover these in detail on our Special Needs Trusts page. The key distinction: third-party SNTs (funded by someone other than the beneficiary) have no payback requirement, while self-settled SNTs (funded by the beneficiary’s own assets) require repayment to the Commonwealth upon death under 42 U.S.C. § 1396p(d)(4)(A).

Pennsylvania Inheritance Tax Implications

Transfers into an irrevocable trust are potentially subject to Pennsylvania inheritance tax at the time of the settlor’s death, depending on whether the settlor retained an interest. Under 72 P.S. § 9107, transfers where the settlor retained an income interest, use of property, or a reversionary interest are taxable (a reversionary interest counts only if it exceeds five percent of the value of the property transferred). The rate depends on the beneficiary’s relationship to the settlor: 0% for spouses, 0% for a child 21 or younger receiving from a parent (72 P.S. § 9116(a)(1.4)), 4.5% for lineal descendants generally (and also for parents, grandparents, and a child's spouse or widow), 12% for siblings, and 15% for most other beneficiaries, with no tax for qualifying charities (72 P.S. §§ 9111, 9116).

When an Irrevocable Trust Makes Sense

Consider an irrevocable trust when you need to accomplish something a revocable trust cannot:

• Asset protection: Shielding assets from future creditors (a settlor's creditors can still reach what the trust can distribute to or for the settlor; requires giving up control and surviving the lookback period for fraudulent transfer claims)
• Medicaid planning: Transferring assets out of your countable resources well before you need care, with the trust terms and the look-back period deciding the result
• Estate tax reduction: Removing appreciating assets from a taxable estate (primarily relevant for estates above the federal exemption)
• Protecting a beneficiary: From creditors, divorcing spouses, or their own poor judgment
• Life insurance planning: Keeping policy proceeds out of the insured’s estate

Legal and factual content on this page was last verified: Sep. 2026. If you are reading this significantly after that date, confirm key provisions with current statute text or contact our office.