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3 things to know about irrevocable trusts

On Behalf of | Dec 19, 2023 | Estate Planning |

Irrevocable trusts are an important estate planning resource. They offer a unique blend of control, protection and financial efficiency. Unlike revocable trusts, once an irrevocable trust is created, it generally can’t be altered or rescinded by the grantor.

This rigidity of the irrevocable trusts might seem daunting, but it results in distinct advantages that creators should carefully consider.

They offer an efficient and controlled way to pass down assets

One of the primary advantages of an irrevocable trust is its efficiency and control in transferring assets to beneficiaries. When assets are placed in such a trust, they aren’t considered part of the grantor’s estate. This separation can streamline the inheritance process, as the assets in the trust may not have to go through probate, the often lengthy and public legal process of distributing a deceased person’s assets.

The grantor can set specific terms and conditions in the trust document, controlling how and when beneficiaries receive the assets. This level of control is particularly beneficial for grantors who wish to put stipulations on their wealth or safeguard the assets for future generations.

They offer protections from creditor claims

Irrevocable trusts offer robust protection against creditor claims. Since the assets in an irrevocable trust are no longer owned by the grantor, they are typically shielded from creditors seeking to satisfy the grantor’s debts.

This protection is particularly advantageous for individuals in professions with high liability risks or those who want to ensure that their assets are preserved for their beneficiaries, regardless of their financial situation. It’s important to note that this protection often depends on the timing of the trust’s creation and funding, as well as specific state laws.

They offer tax benefits for beneficiaries

The tax benefits associated with irrevocable trusts can be significant for beneficiaries. By transferring assets into an irrevocable trust, the grantor can reduce the size of their taxable estate, potentially lowering estate taxes upon their death.

Additionally, certain irrevocable trusts can be structured to minimize income taxes on the trust’s earnings, either by distributing income to beneficiaries in lower tax brackets or taking advantage of specific trust-related tax provisions.

Irrevocable trusts are a powerful tool to use in a comprehensive estate plan. Seeking legal guidance is a good way to get started in crafting this particularly consequential kind of trust.