An irrevocable trust is an estate planning device that the trustor or grantor cannot change after its creation. It allows people to protect their assets, achieve financial goals, and carry out their wishes.

Although everyone should engage in estate planning, you must know the kind of trust that will benefit you and your family the most. Otherwise, you risk losing significant money and paying huge taxes. Bad estate planning can also trigger family conflicts.

Revocable vs. Irrevocable Trust

Even during their lifetime, the grantor can’t alter the revocable trust. You can add or remove beneficiaries, change distribution amounts, and transfer assets. Consequently, you can terminate a revocable trust anytime during your lifetime.

On the other hand, you can also set up a trust that does not allow modification after its creation. If you wish to change the trust, you can amend it by going to court and seeking the help of an estate planning lawyer.

Who Needs Irrevocable Trusts?

You can transfer any property to the trust. It can include cash, real property, stock portfolio, and life insurance policies. However, you must know the people who can benefit most from this type of trust.

High-net-worth individuals

Affluent individuals set up trusts to minimize estate taxes, which is a tax on the right to transfer property after the decedent’s death. Estate taxes generally range from 17 to 40 percent. This percentage can take up a considerable amount from a person’s estate. As a result, the heirs can receive less assets due to the irrevocable trust taxes.

However, the federal government imposes gift tax to stop complete tax avoidance. Hence, the grantor must pay the gift tax if the transferred property exceeds the exclusion amount, which changes yearly. This tax ranges from 18 to 40 percent, so it’s important to consult an estate planning lawyer to know how to minimize such taxes.

People susceptible to lawsuits

Individuals susceptible to legal actions include people with complex estates, doctors, and attorneys. So why would someone want an irrevocable trust? It can help protect their assets from creditors.

A complex estate involves many assets consisting of multiple properties and business interests. However, complex estates can also entail several creditors who can make a claim on the estate.

Professionals, such as doctors and lawyers, face lawsuits more frequently than other workers. For instance, the American Medical Association reported that 31 percent of physicians had encountered medical liability claims. Similarly, lawyers can be sued together with their clients.

After a grantor transfers property to the irrevocable living trust, the trust becomes the asset owner for the benefit of the beneficiaries. Hence, the trust can’t be a party to the lawsuit regarding the grantor’s debt.

Minors or individuals with special needs

Children and people with special needs require more protection, especially when their parents or guardians pass away. Estate planning can ensure they have the resources to meet their daily needs. One type of trust that can help them involves special needs trust, which allows them to maintain eligibility for public assistance benefits.

Another type of trust for minors and people with special needs involves irrevocable life insurance trust (ILIT). It can guarantee that the life insurance benefits avoid estate taxes. You can also designate the age when the minor can handle their inheritance. Until then, the trustee must manage and distribute the assets to benefit the children.

Business owners seeking succession planning

Succession planning allows organizations to properly replace their leaders and managers when such individuals transition to another role. Some owners may experience unfortunate circumstances, such as critical illnesses or death. They can set up an irrevocable grantor trust to prevent adverse consequences as part of their succession plan.

The advantages of succession planning include the following:

  • Protecting your business’ confidential information
  • Identifying the most qualified leaders for your organization
  • Achieving long-term growth

Likewise, a trust can keep the company from satisfying the owners’ personal debts since it shields business assets from creditors. It can also help family businesses by minimizing estate taxes should the second-generation owners take charge of the company.

How to Set Up an Irrevocable Trust?

Establishing a trust involves several steps. Although you can do it alone, a trust attorney can ensure you can achieve your estate planning goals.

  • First, you must identify your objectives, such as reducing taxes or protecting your properties from creditors. This step helps you develop provisions catering to the beneficiaries’ needs.
  • Second, choose the right type of trust. Examples of trust that can’t be amended include ILIT, special needs trust, and charitable trust. They offer different advantages and limitations, so you must know the one tailored to you and the beneficiary.
  • Third, select the irrevocable trust beneficiary and trustee. You must state their respective rights and duties. For instance, the trustee must provide financial statements and maintain impartiality. On the other hand, you can declare in the trust agreement that the beneficiary must regularly meet with the trustee to understand the trust.
  • Fourth, it’s essential to fund the trust. The procedure of transferring assets to the trust account depends on the type of property. For example, you should contact your bank if you’re funding a trust with bank accounts. On the contrary, you must visit the County Recorder’s Office if you’re transferring a real estate title to the trust.
  • Lastly, you or your lawyer must write a trust agreement stating the terms and conditions of the irrevocable trust. It contains several sections, including trustee identification, trust assets, and beneficiaries.

irrevocable trust

Consult With an Experienced Trust Lawyer

High-net-worth individuals can set it up to minimize taxes, while people susceptible to lawsuits can use the trust to protect their properties from creditors. This type of trust can also protect minors or individuals with special needs. It also serves as an essential part of a business succession plan.

Cristy J. Carbon-Gaul, a reputable trust lawyer, can help you decide if an irrevocable trust is the right choice for your distinct needs. Schedule a consultation with our law office to plan for your future and protect your assets.