There’s no one-size-fits all approach to estate planning. Just as all people are different, everyone has different needs when it comes to deciding how their assets will be managed and distributed. Trusts are a popular way for individuals to oversee the how their property is passed on while they’re still alive. Irrevocable trusts, in particular, come with a number of advantages that make them highly attractive estate planning tools.
How Revocable and Irrevocable Trusts Differ
Trusts typically come in two types – revocable and irrevocable. Revocable trusts, also known as living trusts or inter vivos trusts, can be changed at any time during your life. The assets that are funded into a revocable trust continue to be considered part of the creator’s personal assets for estate tax and creditor purposes. Irrevocable trusts, on the other hand, cannot be changed after the trust agreement is signed, and the assets are no longer counted as part of the creator’s estate.
The Benefits of an Irrevocable Trust
Irrevocable trusts offer a number of advantages over revocable trusts. If you’re comfortable relinquishing control over some of your hard-earned assets while you’re still alive, the benefits can be great.
- Minimizing Taxes. Perhaps the most talked-about benefits, and one of the things that makes irrevocable trusts so attractive, is that irrevocable trusts allow property to avoid being taxed upon the creator’s death. Because the assets are no longer considered to be part of the estate once they pass to the trust, they aren’t subject to the estate tax when the creator dies. Also, depending on how the trust is structured, you may be able to minimize capital gains taxes for you beneficiaries on certain types of assets.
- Protection from Creditors. Once assets pass to the irrevocable trust, they’re in the possession of neither the grantor nor the beneficiaries, but rather are the legal property of the trustee, who is holding them for the beneficiaries. This means that creditors of either the grantor or the beneficiaries have no ability to access the assets in order to satisfy a debt or judgment or place a lien on them.
- Avoiding Probate. Unlike wills and other testamentary tools, irrevocable trusts bypass the probate process. That means that your loved ones won’t have to pay probate costs and endure the typical long waits while your assets are tied up waiting for the probate courts to settle your estate.
- Maintaining Income. While irrevocable trusts require you to relinquish ownership of your assets that go into the trust, the same isn’t necessarily true of the income those assets generate. For example, if investments are placed in the trust, you may still be able to collect any interest those investments generate.
Things to Keep in Mind
Just as the name implies, once you place assets into an irrevocable trust, it can’t be undone. Life is full of unexpected changes, so you’ll want to be sure that you’re comfortable parting with control over your assets before you sign the trust paperwork. A trusted advisor can help you determine whether an irrevocable trust is the best means to accomplish your estate planning goals.
Contact a California Estate Planning Attorney Today
The Ledbetter Law Firm, APC is dedicated to helping individuals and families plan for their futures through all aspects of estate planning. Contact The Ledbetter Law Firm, APC to discuss whether an irrevocable trust is right for your particular situation.