Trusts are a growing tool when it comes to estate planning. As a result, trust usage is increasing throughout the nation. Trusts offer many benefits when it comes to asset distribution, but also have limitations that other estate planning methods don’t have. Trusts allow for great specificity regarding how, when, and to whom assets are distributed. Additionally, trusts come in a wide variety of categories and subcategories dedicated to particular estate planning goals, such as charitable giving or tax reduction.
A trust not only designates who may benefit from the funds or resources in the trust, but addresses situations of incapacity, such as strokes, dementia, or Alzheimer’s. Those at risk of such circumstances may want to consider utilizing trusts to ensure that their resources and funds are preserved, managed, and spent in a manner that conforms to their wishes while in the care of loved ones or healthcare professionals.
What are Irrevocable Trusts?
Irrevocable trusts are a specific type of trust that cannot be modified, amended, or terminated without the permission of the grantor’s beneficiary or by the order of a court. While the precise rules governing irrevocable trusts vary from state to state, the grantor, having essentially transferred full ownership of assets into the irrevocable trust, legally removes their rights of ownership to the assets and the trust in this process.
The purpose of an irrevocable trust is to shift assets from the grantor’s legal control and name to that of the beneficiary. In practice, this reduces the value of the grantor’s estate when it comes to asset issues such as estate tax assessments and further can serve to protect the trust assets from creditors. As a result, irrevocable trusts are frequently created to minimize estate tax burdens, access government benefits, and protect assets from creditors. Irrevocable trusts are distinct from revocable trusts in that revocable trusts allow the grantor to modify the trust, however, some benefits, such as creditor protection are lost.
How an Irrevocable Trust Functions
Irrevocable trusts are most frequently set up for estate and tax considerations. That is due to the fact that the process removes all incidents of ownership, completely removing the trust’s assets from the grantor’s taxable estate, and relieving the grantor of the tax liability on the income generated by the assets. Different jurisdictions treat trusts in different ways, but grantors cannot receive benefits if they are the trustee in this trust format. The type of assets held in such a trust can include but are not limited to, a business, investment assets, cash, and even life insurance policies.
Limitations of Irrevocable Trusts
While there are some very appealing aspects of irrevocable trusts, there are also limitations to this trust format. This type of trust does relieve the grantor of tax liability and provide creditor protections, but setting up such a trust is complicated, and subsequently, the process can be expensive. As with most estate and legacy planning issues, the more complex the matter, the more cost is associated with the implementation and execution.
Speak with a Boulder, Colorado, Estate Planning Attorney Today
Contact us for information about exploring trusts, trustee actions, and other estate planning services. Braverman Law Group is here to help clients with benefits planning, estate planning, and many things in between. To schedule a free, no-obligation consultation with one of our trusted Boulder estate planning attorneys, give us a call today at (303) 800-1588.