Irrevocable trusts may not be revised after the trust agreement has been completed. Revocable trusts essentially become irrevocable after the trust-maker passes away. Irrevocable trusts may be comprised of multiple documents each with a specific purpose. The following is information on the variations and purposes of irrevocable trusts such as minimizing estate taxes, protecting assets, and donating to charity.
Variations And Purposes Of Irrevocable Trusts
Reducing Estate Taxes
An irrevocable life insurance trust is one way of transferring property from an estate in order to avoid estate taxes. The person who owns the property and sets up the trust essentially transfers their belongings into the trust (to the trustees and beneficiaries) and as a result no longer possesses the assets directly. Those assets therefore may not be taxed as part of the estate when that person dies.
There are other trusts that can achieve a similar objective. AB trusts are used to benefit a surviving spouse for a certain exempted amount and deferral of estate taxes for any excess. ABC trusts are helpful in states where the state tax exemption is less than the federal one.
Most irrevocable trusts can protect family assets. Since property is transferred into the trust and are no longer personal property, they are protected from creditors and others who may file personal suits against the trustmaker. Family members can be made the beneficiary of the trust and will still receive the benefit from those assets. This may be a critical factor for certain people based on their occupation and potential liabilities.
Some types of irrevocable trusts are specifically designed for charitable donations. Examples of this are charitable remainder trusts and charitable lead trusts. Trustmakers can move assets into a charitable trust while he or she is still alive and receive a charitable income tax deduction for that tax year. If the transfer takes place after death of the trustmaker, then the estate will obtain the tax deduction.
Help With Irrevocable Trusts
If you are thinking about revocable and irrevocable trusts, it is important to understand their differences and benefits as it applies to your personal assets. The above variations and purposes of irrevocable trusts is only offered as a basic introduction. Contact John Martino at Martino Law Group for further information on trusts and other components of your estate plan.