An irrevocable trust is typically used to help protect assets and reduce federal estate taxes. A creator, also known as the grantor, can designate assets of their own choosing to transfer to a beneficiary. Irrevocable trusts are difficult to change or dissolve, and the grantor gives up their ownership of their assets. The beneficiary will need to permit the grantor, or a court order will need to be filed, if any changes are to be made. The exact rules on irrevocable trusts will vary by state.
Why Set Up An Irrevocable Trust?
Minimizing estate taxes, remaining eligible for government benefits, and protecting assets are all common reasons for setting up an irrevocable trust. A grantor transfers ownership of their assets to the trust, removing all incidents of ownership and removing them from their taxable estate.
Doctors, attorneys, or other professions that are vulnerable to lawsuits can benefit from irrevocable trusts. Transferring assets into the trust means that the trust now owns them, making it safe from creditors and legal judgments. Modern irrevocable trusts provide greater flexibility than older versions, especially for trust management.
Those who set up an irrevocable trust have a lower risk of probate, better privacy, and tax liability than those who don’t and have a large estate.
Types Of Irrevocable Trusts
There are two forms of irrevocable trusts, living trusts and testamentary trusts. Living trusts are established while a grantor is alive, while testamentary trusts are established after the grantor’s death, based on their will. Depending on your specific circumstances, here are different types of irrevocable trusts that you can establish.
Charitable Trusts
These trusts allow you to transfer assets to a charitable organization, but allow a grantor to initially transfer assets to a beneficiary and disperse the remainder to the charity. A charitable trust allows the grantor to take a partial income tax deduction as a result of funding the trust.
Irrevocable Life Insurance Trusts
ILIT offers a beneficiary to own a life insurance policy during the insured individual’s life. Following their death, the trust oversees and distributes the rest of the policy to a beneficiary.
GRATs and QPRTs
A grantor-retained annuity trust (GRATs) and qaualified personal residence trust (QPRTs) to help minimize taxes. Money and property are often put in these trusts with a set time for the trust to terminate, as the assets will pass to beneficiaries at the termination without estate taxes (if the grantor is still alive). If a grantor dies before the terms end, the assets will be included in estate taxes.
Spendthrift Trusts
These trusts limit a beneficiary’s access to the funds, which can be beneficial for those who may not be able to handle money, property, or assets.
Special Needs Trusts
Set up for those with disabilities, special needs trusts allow a person to keep their assets without being disqualified from government benefits. These trusts are managed by a trustee, and the monetary benefits are given to the beneficiary.
Working With WW Partners
WW Partners are the top legal, business, and estate experts in Salt Lake City. Our team can help you navigate court cases, estate planning, wills, and small business problems. Hiring an attorney can help bring peace of mind when you are going through complex problems, litigation, and more. Our team is here to help explain the process and work with you through the entire process. Establishing a will or trust is a complex process that should be handled by a professional attorney.
Each professional on our team brings a wealth of knowledge to your case, helping bring success to many different industries. Our collaborative approach allows us to provide customized solutions to our clients.
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Frequently Asked Questions
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Can An Irrevocable Trust Be Changed?
Most often, irrevocable trusts are ironclad, but there are special circumstances where you may be able to make changes. These changes may take a long time to come to fruition because they often need to go through court orders. Each state will have different rules and circumstances that allow for changes to irrevocable trusts. One unique example is if you establish a trust for assets that are currently in a lawsuit or an impending lawsuit, the court may overturn the trust, as you can not protect your assets from a specific party.
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Can I Be The Trustee Of My Own Trust?
Typically, no. In order to protect the assets, a third party will need to be the one to handle the passing on or distribution of the assets. A grantor can often not be a trustee, and you should find a family member, business, or corporation to be the trustee.