Establishing a trust is one of the simplest and most effective ways to ensure that you retain control over the distribution of your assets for all time, including after you pass away. Simply put, a trust is a mechanism to keep track of who owns and maintains property, as well as how it is managed and distributed. The relationships of the people participating in the trust are characterized as a trust. There is a grantor, a trustee, and a beneficiary in every trust.
- The individual who places the property in the trust is known as the grantor.
- The trustee is the individual in charge of managing the trust’s assets.
- The trust’s beneficiary is the individual who benefits from the trust’s assets.
Why would I want my property in an irrevocable trust?
Putting your property in a trust and knowing that your wishes at the moment of trust creation are irrevocable seems daunting. However, irrevocable trusts offer estate tax advantages, protect the assets in the trust from creditors, and are particularly valuable for providing for family members who may have special needs, are financially irresponsible, or are minors.
How do I create an irrevocable trust?
A trust can be established as easily as creating a written agreement and nothing more than negotiating a written contract. The grantor names a trustee, names the beneficiaries, and specifies how the trustee shall distribute the property and should also account for contingencies, such as the beneficiary’ death.
Once the trust is established, the trustee has obligations of duties in good faith (fiduciary responsibilities) to invest and protect the trust’s assets with caution while he or she is adhering to the trust’s directions.
Besides the grantor, anyone can serve as a trustee. Trustees are frequently a trusted family member or friend, however grantors may want a professional or institution to serve as trustee instead. A trust can have many trustees, and if there are more than one, they are referred to as “co-trustees.” Once again (besides the beneficiary), anyone can be a beneficiary of an irrevocable trust.
Benefits of creating an irrevocable trust
A gift made while you are alive (such as life insurance or proceeds paid while you are alive but transferred upon death) is not counted against your estate’s taxable amount after you die. In many circumstances, you may not wish to offer the beneficiaries a cash settlement. A trust allows you to make a financial gift while avoiding estate taxes and defining asset distribution parameters.
Aside from tax advantages, an irrevocable trust protects the grantor’s assets from creditors. Because the assets transferred to the trust do not belong to the grantor, they are no longer executable. Creditors of the trust’s beneficiary can only seize the assets the moment they have been transferred to the beneficiary’s trust.
An irrevocable life insurance trust, or ILIT, which you can learn more about here, is another option.
Another type of irrevocable trust is a charitable remainder trust, which you can read about here.