Estate planning entails a number of considerations: taxes, the selection of beneficiaries, asset management for the purpose of inheritance, and more. It can be a lot to sort through, and there are several ways to approach the formation of your plan. One common approach people use to manage and protect their assets is to create an irrevocable trust.
Below, you’ll find a simple definition of an irrevocable trust and some common questions that come up when constructing and managing one.
An irrevocable trust is a legal document and arrangement that outlines how the grantor (its creator) would like property or assets to be managed by the trustees for designated beneficiaries. The “irrevocable” part indicates that the terms of the trust cannot be changed by the grantor after the trust has been established.
Both irrevocable and revocable trusts include a grantor(s), trustees, and beneficiaries, and both are generally excluded from probate. But, unlike an irrevocable trust, a revocable trust can be amended or revoked by the grantor within the grantor’s lifetime.
Another difference lies in tax policy. The grantor of a revocable trust must pay taxes on any realized gains within the trust’s holdings because that person (or people) retains control of the trust’s assets. However, the grantor of an irrevocable trust relinquishes control of the assets that are deposited into the trust, and thus the trust itself is required to pay taxes on any realized gains within the holdings.
For more information on the differences between revocable and irrevocable trusts, click here.
These are some of the most pressing factors people consider when they open an irrevocable trust:
Typically, if you are a trustee, there are allowances for withdrawing money from irrevocable trusts. However, the guidelines established during the trust’s creation dictate the ways in which this is possible.
The simple answer is no. While there are certain changes that could be made to an irrevocable trust depending on the state it is created in and the wishes of the beneficiaries, these are generally modifications and not a full conversion.
Generally, when the grantor of an irrevocable trust passes, any trustees designated during the grantor’s lifetime assume responsibility for the trust. The process of distributing assets to beneficiaries depends largely on the guidelines that were established upon the creation of the trust. If you are a trustee of an irrevocable trust and have questions about your role, working with an estate lawyer can provide clarity about how best to execute the grantor’s wishes.
If you are the trustee of an irrevocable trust, a One Day In July financial advisor can help you create a long-term investment plan using low-cost index funds for the assets under your protection. We are fiduciaries on all accounts, which means we act in your best interest at all times.
(802) 503-8280 | welcome@onedayinjuly.com
Get Started Today.