An irrevocable trust is a useful estate planning tool that may help you to meet your goals for the future.
So then, what is an irrevocable trust and why would you want to form one?
An irrevocable trust is a trust that, better hold onto your hats for this one, cannot be revoked. This means that the grantor, or trust maker, cannot change the terms of the trust, modify the trust, or cancel the trust, except under certain circumstances.
By creating an irrevocable trust you are putting the control of your assets in someone else’s hands, of course you, or any other beneficiary you name, will receive the full benefit of the trusts assets, but I would imagine most of us like to be in control of our own assets.
In most cases, you do not want to use an irrevocable trust. Generally, and for most people, a revocable trust or will are much better suited to their needs, but there are times when an irrevocable trust can come in handy.
Irrevocable trusts, much like their living revocable trust counterparts, have a useful role to play in your estate plan. Here are two ways an irrevocable trust can help you in your estate planning.
If you are extremely wealthy:
If you have enough wealth that you are eligible for estate taxes you can utilize an irrevocable trust to avoid those taxes. For most people estate taxes will not be a problem as these taxes only apply to wealth over $11.5 million. But if you have a great amount of wealth, an irrevocable trust is an option worth considering as the estate tax comes in at an extremely steep rate.
There are a couple of different methods that may allow you to transfer your wealth to irrevocable trusts which are not subject to the estate tax.
For example, you can use your yearly gift allotment to purchase life insurance and put that in an irrevocable life insurance trust, the trust then would likely not be subject to the estate tax.
Giving the control of your assets to another person and remaining as the beneficiary, or naming another person as beneficiary, may allow you to avoid paying estate taxes, should you have the assets to do so.
Protecting Assets:
Irrevocable trusts can be useful in protecting assets from creditors, so long as the trustee and beneficiary are unrelated parties. However irrevocable trusts for the purpose of protecting assets may or may not work and are typically only used in states with more favorable trust laws then Missouri.
So really, the primary purpose of an irrevocable trust is to help people who are subject to the estate tax shelter their wealth in a way that the wealth is not available to be taxed in that method.
In summary, an irrevocable trust is probably not a tool you will need to consider using unless you are wealthy, or possibly if you work in a field where you are worried about being sued and want to try to protect your family's assets.
If an irrevocable trust is something you would like to consider, or is something you have more questions about, please contact Hometown Law, LLC. We will be happy to answer any questions and help you to create a comprehensive estate plan.
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