Irrevocable trusts provide the trust’s creator with certain protections. Despite the advantages that these trusts provide, trust creators must give up any control over assets that are placed within the trust. This article reviews 4 important things you must remember about irrevocable trusts in case you intend on making them part of your estate plan.
# 1 – How Irrevocable Trusts Function
Irrevocable trusts refer to trusts where the terms cannot be modified or altered after they are finalized. Instead, the person who creates the trust transfers their ownership of the assets in the trust to the control of the trust. Many estate plans make use of irrevocable trusts in combination with other estate planning documents. Placing assets in an irrevocable trust means that the assets are not subject to estate taxes. These assets are also shielded from creditors. In understanding how these trusts function, it helps to know what three parties are involved:
- Grantors who create the trust and fund it with assets that are intended for the trust’s beneficiaries
- Beneficiaries are people who will benefit from the trust when the transfer of the assets within the trust occurs
- The trustee is either the individual or entity who is tasked with administering the trust under its terms
# 2 – The Types of Irrevocable Trusts
Some people make the mistake of thinking that irrevocable trusts only come in one form. In reality, irrevocable trusts include several types of trusts including:
- Living trusts, which are funded during the trust creator’s life. These trusts come in several forms including irrevocable life insurance trusts which are funded by one or more life insurance policies, grantor annuity trusts which allow a grantor to contribute assets to the trust and receive an annuity payment, and charitable trusts in which a charity is the beneficiary of the trust’s assets.
- Testamentary trusts, which are created after the death of the trust’s creator. These trusts are funded with assets from the trust creator’s estate.
# 3 – What Separates Revocable from Irrevocable Trusts
Several factors separate irrevocable from revocable trusts. Some factors that make irrevocable trusts unique include:
- The terms of an irrevocable trust cannot be altered
- Irrevocable trusts provide shelter from taxation and credit protection
- The creator of an irrevocable trusts cannot change the trust’s terms
- The creator of irrevocable trust cannot remove assets from the trust
# 4 – The Advantages of Irrevocable Trusts
Some of the benefits that people realize by creating irrevocable trusts include:
- Assets used to fund irrevocable trusts are not subject to estate taxes
- Irrevocable trusts can be used to move assets out of a person’s control so that the individual qualifies for Medicaid or other government benefits
- For people with large estates and specific estate planning goals, the certainty of irrevocable trusts makes them one of the best way to achieve estate planning goals
Speak with a Skilled Estate Planning Attorney
Irrevocable trusts are just one of several estate planning tools that you might decide to utilize. If you need help creating the best estate plan possible, do not hesitate to speak with a knowledgeable attorney at Ettinger Estate Planning today.