Irrevocable trusts are a type of trust that cannot be modified except for under certain circumstances. The trust agreement specifies whether the trust can be revoked. When you transfer assets into your irrevocable trust, you relinquish control of those assets, and the trust property is no longer yours. Once funded, an irrevocable trust is not easy to change. It takes potential court proceedings or a nonjudicial settlement agreement between interested parties.
There are four reasons many people find it helpful to establish an irrevocable trust as part of their estate plan:
1. An irrevocable trust can remove assets out of your estate for estate tax purposes, which can provide estate tax savings. You are still able to pass assets to beneficiaries of your choosing, without the additional estate tax liability.
2. Asset protection is another benefit of irrevocable trusts. Since the assets in an irrevocable trust are not owned by you and you no longer have control, the assets are shielded from creditors.
3. There are income and asset limits related to various government benefits, and by having your assets in an irrevocable trust, the trust income and assets are not included when determining eligibility for these programs.
4. An irrevocable trust can be set up with a charitable giving structure. This is advantageous because you can give to charity while also removing assets from your estate for estate tax purposes.
There are several planning considerations when creating an irrevocable trust. Irrevocable trusts can be funded in many ways, and some specific types of assets that are good candidates for funding include cash, stocks, bonds, a personal residence, and certain life insurance policies. It is important to consider if the grantor needs an income stream, and the amount of access the beneficiaries will have to the trust. Another aspect to consider is whether the irrevocable trust will file a grantor or non-grantor status tax return. It is important to know which entity is taxed on the income generated by the trust assets. Asset management, including distributions to beneficiaries, must be done in accordance with the trust agreement.
Boulay advisors can assist you and your family in determining if an irrevocable trust is a good option for your estate plan. Learn more by contacting a Boulay advisor at 952.893.9320 or learnmore@boulaygroup.com and asking about our estate and trust planning services.