Irrevocable Trusts
Learn how to leave a legacy, avoid taxes, and protect your assets – all legally.
Would you be intrigued to find out how your assets can avoid federal transfer taxes for years to come and how to protect assets from beneficiary creditors and create a legacy, all legally and without going offshore? Find out what you don’t know about the (not so) “irrevocable” trust right here.
Irrevocable Trusts
“Irrevocable” can be a scary term. After all, in most contexts, “irrevocable”, means that something can’t be changed. There is no turning back. It’s once and done.
Why?
Estate planning attorneys tend to be really smart folks. They know how to work within the law and shape the law to benefit their clients. This means that while your estate planning lawyer will want you to think of your irrevocable trust as indeed irrevocable, technically, it can be changed.
What is an Irrevocable Trust?
Trusts might sound complicated, but a trust is just a written agreement (e.g. a bunch of instructions, indicating what’s supposed to happen when).
To bottom line it for you: An irrevocable trust is a book of instructions that, on the surface, looks like they can’t be changed. This surface “irrevocability” is essential to trust benefits such as asset protection and the minimization of federal transfer taxes.
Most irrevocable trusts are created to minimize federal taxes, protect assets, benefit a favorite charity, or create a legacy.
Common irrevocable trusts include:
- Irrevocable Life Insurance Trust(ILIT)
- Spousal Trusts(IDGT)
- Children’s and Grandchildren’s Trusts(IDGT)
- Qualified Personal Residence Trusts(QPRT)
- Charitable Trusts(CLT and CRT or TCLT and TCRT)
- Special Needs Trusts(SNT)
- Domestic Asset Protection Trusts(DAPT)
In addition, it may surprise you to know that revocable living trusts become irrevocable when the trust maker becomes incapacitated or dies.
Moreover, any sub-trusts created in a living trust are irrevocable.
They are the:
- Family Trust
- Marital Trust
- Beneficiary Trusts
- Testamentary Charitable Trusts
Do I Need an Irrevocable Trust?
Here are indicators that you may benefit from an irrevocable trust:
- Your net worth is more than $5 million and you are single or $10 million and you are married; OR,
- You want to leverage your gift, federal estate tax, and generation skipping tax exemptions; OR,
- You want to create a trust to own a family vacation home; OR,
- You want to create an educational fund to last for generations to come; OR,
- You want to protect assets from creditors; OR,
- You want to create a charitable legacy; OR,
- You want to set up yourself or your spouse, children, and grandchildren as important members of the community.
How Can an Irrevocable Trust Be Changed?
If you are the trust maker, you absolutely cannot have to power to change an irrevocable trust on its face.
(This is completely opposite revocable living trust provisions, which allow amendments, restatements, and a complete revocation at any time the trust maker is alive and well.)
There will be no provisions within the irrevocable trust for you to change it. However, there are 3 methods to change trust terms and 2 can be done in private and without court approval.
- The Trust Protector: A trust protector is an independent professional, such as an estate planning attorney or trust company, who can change the terms of an irrevocable trust to carry out the trust maker’s intent. It’s as if the trust protector has a magic wand.
- The Substitute Trust Process: A new irrevocable trust, with new and more favorable terms, can purchase assets from an old irrevocable trust.
- The Court: The court can be petitioned to allow the change the terms of a trust.
Intrigued by irrevocable trust benefits? When you have your estate planning consultation and discuss your goals, family situation, and assets, it’s okay to ask your estate planning attorney whether this kind of trust is appropriate for you.
