While many prefer to make trusts revocable, meaning that they can be changed during the grantor’s lifespan, there are plenty of reasons to make a trust irrevocable. These kinds of trusts are well known as a means for the wealthy to ensure that their assets remain available to their benefactors after they die. However, irrevocable trusts aren’t just for the wealthy; they’re for everyone. And, they happen to be one of the best ways to pass on an inheritance to your beneficiaries. To explain why, we’re going to go over some of the benefits of irrevocable trusts.
• Avoiding Estate Taxes: When assets are held in a revocable trust, they are still considered to be the assets of the grantor. For this reason, they can be subject to estate taxes when the grantor passes away. This is not the case with irrevocable trusts. When assets are placed into an irrevocable trust, they are no longer considered to be a part of the grantor’s estate. This makes them exempt from estate taxes, as these assets are owned by the trust and not the grantor.
• Shielding Assets from Creditors: In much the same way that an irrevocable trust shields your assets from estate taxes, so too does it shield your assets from creditors. However, there are some wrinkles to this, which we explore below.
• Privacy: If your assets are significant enough that you’d like to keep them hidden from the public, placing them in an irrevocable trust is a great way to do so. In addition, the trust also keeps your assets out of probate court, which would make those assets a matter of public record.
• Maintaining Cash Flow: Although the assets that are held inside of an irrevocable trust are technically owned by the trust, profits that are gained off of its holdings or interest accrued can be paid out on a regular basis. If the assets and holdings are significant enough, this can make an irrevocable trust a valuable source of income during retirement years.
Things to Watch Out For
As mentioned, one way that people use irrevocable trusts is to shield assets from creditors. However, if you’re thinking about an irrevocable trust for this purpose, then you should tread cautiously. The reason is simple. If you have a reasonable anticipation that creditors will (or already are) coming after your assets, then moving them into an irrevocable trust will most likely be viewed as fraudulent. Rather obviously, this puts both your assets and your legal standing at risk.
However, if you’re thinking of making this move more as a preventive measure, then you’re on solid ground. In fact, many people elect to use irrevocable trusts as a kind of failsafe, a way to protect themselves against the unforeseen eventuality of creditors coming after assets. If you find yourself in a position where you think such a financial move might be necessary, then it would behoove you to consult with an estate planning attorney who is well versed in the laws surrounding irrevocable trusts like the ones at Clear Counsel Law Group.