If you’re finalizing estate plans, consider an irrevocable trust.

Whether you’re familiar with the concept or not, irrevocable trusts are powerful financial tools. Irrevocable trusts provide asset protection that the creator cannot change or revoke. So, depending on a participant’s financial situation, the outcome of these accounts can be wildly beneficial.

But, given how confusing these trusts can be, we’ve decided to get together a comprehensive guide on everything you need to know about one.

Who Is in Charge of It?

When it comes to an irrevocable trust, the creator (also known as the ‘grantor’) cannot change, alter, or revoke any of its stipulations once it’s been established. Essentially, this means that the grantor gives up all control of the assets they put into it when everything has been finalized.

Prior to the finalization, the grantor is able to dictate the terms of the assets, and all the rules and uses of them (with consent of the trustee and its beneficiaries).

Some examples of assets that they could put into it could be things like life insurance policies, properties, businesses, etc.

Can it be Changed?

In most instances, there is no way to change an irrevocable trust once assets are in it. The only time that things can be altered is if all the beneficiaries of the trust agree with the proposed changes and they have a court order approving them.

Another option for changing an irrevocable trust is called decanting. Decanting allows for the trust to be moved into another trust. Doing this means the stipulations will be updated, providing beneficiaries with more modern or potentially more lucrative options.

Why Consider It?

The main reason why people might consider setting up an irrevocable trust is for the estate and tax benefits it provides. That’s because these accounts remove all legal ownership from the creator’s assets. Thus, removing their tax liability for the assets.

Additionally, any income generated from assets in the trust will not be taxed which results in a huge saving for those with very large estates.

These types of accounts are also great options for people who are in professions that might make them susceptible to lawsuits. People like lawyers, doctors, or business owners who want to protect themselves from potentially negative legal judgments and creditors once they pass on (since the trust cannot be a party to a lawsuit).

The Cost

It is important to consider the cost of setting up an irrevocable trust. Although the tax benefits can counter the financial burden of setting up a trust, it might not come cheap. Given how complicated this type of trust is, potential creators are recommended to speak with an attorney and have them review all of the paperwork before agreeing to the trust’s guidelines.

Types of Irrevocable Trusts

There are two types of irrevocable trusts: living and testamentary trusts. A living trust is one that is funded by the creator during their lifetime. For example, life insurance trusts, spousal lifetime cost trusts (SLATs), and charitable remainder trusts.

Testamentary trusts differ seeing as they are established after the death of the creator. These are also funded by the deceased’s estate which will allocate the assets according to the terms of their will. It is important to note that the only way to change or cancel a testamentary trust is by the creator prior to their death. Otherwise, the terms cannot be disputed.

Ultimately, irrevocable trusts offer plenty of tax advantages and personal benefits. However, these complicated accounts can be difficult to understand. If you think that you would benefit from an irrevocable trust, consider getting in touch with a member of our team at 407-328-5001.

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