Irrevocable trusts are trusts that remove all the rights of control and ownership of the grantor (person making the trust) over the trust and assets within the trust. The trust cannot be modified or changed by the grantor, only the beneficiaries of the trust. The benefits of an irrevocable trust are that it provides asset protection and tax benefits. All assets within the trust are no longer included in the grantor’s taxable estate.
There are several types of irrevocable trusts including the following:
- Trusts for Minors. An irrevocable trust can be established to provide for the education and other life needs of minor children. Irrevocable trusts for minors can designate when and how the assets of the trust can be distributed. For example, will the assets be distributed at certain ages or throughout the beneficiary’s lifetime.
- Spendthrift Trusts. An irrevocable trust in which the assets are considered assets of the beneficiaries for tax purposes.
- Supplemental Needs Trusts. An irrevocable trust used when a beneficiary is a recipient of Medicaid, SSI, or other governmental assistance programs. Because an outright gift may disqualify a beneficiary from governmental aid programs, this type of trust is created so that the assets received by the beneficiary are not considered for the purposes of determining eligibility in government assistance programs.
- Life Insurance Trusts (ILIT’s). An irrevocable trust that holds the life insurance policies in the names of the beneficiaries so that it will be exempt from estate taxes. The grantor designates the ages and stages for their children to receive the proceeds of the life insurance policy. Since the life insurance policy is owned by the grantor’s children, when the premium is due, the grantor gifts the amount of the premium and puts it in a trust account to be paid to the insurance company.
- Charitable Trusts. Irrevocable trusts established to benefit a charitable organization today (charitable lead trust) or in the future (charitable remainder trust). The value of the gift provides the grantor with a tax deduction.
Irrevocable trusts can be complicated and must be drafted with proper language in order to qualify for certain tax benefits, that is why it is important for a knowledgeable and skilled attorney to review your specific estate planning needs and properly draft estate planning documents that will benefit your family.
If you or a loved one are considering drafting estate planning tools such as an irrevocable trust, or you would like more information, please contact Winston Law, P.A. at (561) 670-9375 or firstname.lastname@example.org for your free consultation.