Can the IRS Seize Assets in an Irrevocable Trust?

Irrevocable trusts are legal arrangements that provide asset protection and estate planning benefits. However, concerns may arise regarding the potential for the Internal Revenue Service (IRS) to seize assets held within an irrevocable trust. This article analyzes the interplay between irrevocable trusts and the IRS’s authority to levy assets, providing insights into the circumstances under which the IRS can and cannot seize assets from an irrevocable trust.

Understanding Irrevocable Trusts

An irrevocable trust is a legal entity established by an individual (the grantor) who transfers assets into the trust. The key characteristic of an irrevocable trust is that, once created, it cannot be modified or terminated by the grantor without the consent of the trustee or beneficiaries. This permanence is intended to protect the assets from the grantor’s creditors, including the IRS.

IRS Authority to Seize Assets

The IRS has broad authority to seize assets to satisfy unpaid tax liabilities. This authority extends to various types of assets, including personal property, real property, and financial accounts. However, the IRS’s ability to seize assets from an irrevocable trust is limited.

IRS Seizure of Assets in Irrevocable Trusts

Generally, the IRS cannot seize assets held in an irrevocable trust because the grantor has relinquished control over those assets. The IRS considers the assets in an irrevocable trust to be owned by the trust itself, not by the grantor. As a result, the IRS cannot levy assets that are not owned by the taxpayer.

Exceptions to the Rule

There are a few exceptions to the general rule that the IRS cannot seize assets in an irrevocable trust. These exceptions include:

  • Fraudulent Transfers: If the grantor transferred assets to the trust with the intent to avoid paying taxes, the IRS may be able to set aside the transfer and seize the assets.
  • Retained Interests: If the grantor retains any interest in the trust, such as the right to income or the ability to revoke the trust in the future, the IRS may consider the assets to be still owned by the grantor and subject to seizure.
  • Sham Trusts: If the trust is deemed a sham, meaning it was created solely to avoid taxes and has no legitimate purpose, the IRS may disregard the trust and seize the assets.

Protecting Assets from IRS Seizure

To protect assets from IRS seizure, it is crucial to ensure that the irrevocable trust is properly established and administered. This includes:

  • Consulting with an Attorney: Seek legal advice from an experienced estate planning attorney to ensure that the trust is drafted correctly and complies with all applicable laws.
  • Transferring Assets Properly: Transfer assets to the trust in a timely manner and avoid any actions that could be construed as fraudulent.
  • Maintaining Trust Records: Keep detailed records of all trust transactions, including asset transfers, distributions, and income.
  • Avoiding Retained Interests: Do not retain any control or interest in the trust that could jeopardize its irrevocable status.

Irrevocable trusts can provide effective asset protection against IRS seizure. However, it is essential to understand the limitations of the IRS’s authority and to take steps to ensure that the trust is properly established and administered. By consulting with an attorney and following best practices, individuals can safeguard their assets from potential IRS claims while achieving their estate planning goals.

DON’T Use an Irrevocable Trust Without These 4 Things


Can the IRS touch an irrevocable trust?

The IRS and Irrevocable Trusts This means that generally, the IRS cannot touch your assets in an irrevocable trust. It’s always a good idea to consult with an estate planning attorney to ensure you’re making the right decision when setting up your trust, though.

Can assets in an irrevocable trust be seized?

For lawsuit-proof wealth, you need an irrevocable trust or another protective entity. Since you cannot revoke or change an irrevocable trust, your creditors have no greater power to unwind your trust and reclaim its assets.

Can the IRS put a lien on a property in a trust?

However, any other assets, such as, but not limited to, improvements such as buildings on trust land, vehicles, bank accounts, earnings, and fee simple land, owned by individuals, are subject to seizure, Federal Tax Liens, garnishments, and levies.

What is the IRS ruling on irrevocable trusts?

The IRS concluded that no step-up in basis is available for assets in an irrevocable trust where the individual creating the trust retains a power that causes the individual to be the owner of the entire trust for income tax purposes but does not cause the trust assets to be included in the individual’s gross estate.

What does the new IRS rule mean for an irrevocable trust?

A couple signs a series of documents setting up an irrevocable trust. Managing your taxes can be one of the most complex aspects of estate planning and a new IRS rule change continues that trend. The rule, published at the end of March, changes how the step-up in basis applies to assets held in an irrevocable trust.

Should irrevocable trust assets be included in a taxable estate?

By including the irrevocable trust assets in the taxable estate, heirs who are the beneficiaries of the trust will dodge the tax hit and receive the step-up in basis. However, that situation could change for some people in 2026 when the estate tax exemption limit reverts to the 2017 amount of $5 million, adjusted for inflation.

What happens if an irrevocable trust gets a step-up in basis?

Instead, the trust becomes the owner of the assets for the benefit of the trust’s beneficiaries. Previously, the IRS granted the step-up in basis for assets in an irrevocable trust but the new ruling – Rev. Rul. 2023-2 – changes that. Unless the assets are included in the taxable estate of the original owner (or “grantor”), the basis doesn’t reset.

What happens when an irrevocable trust is established?

At the same time, the grantor gives up certain rights to the trust. Once an irrevocable trust is established, the grantor cannot control or change the assets once they have been transferred into the trust without the beneficiary’s permission. These assets can include a business, property, financial assets, or a life insurance policy.

Leave a Comment