Explanation of an Irrevocable Trust
A grantor desiring to eliminate her ownership interest in certain assets establishes an irrevocable trust. The grantor is the individual creating the trust in the first instance. A grantor can convey any type of property into an irrevocable trust. For example, the assets of an irrevocable trust may include cash, stocks or real estate.
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Function
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The primary function of an irrevocable trust is to provide a mechanism through which assets pass from the grantor to beneficiaries, thus avoiding estate taxes in the process.
Features
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The grantor cannot cancel, terminate, alter or change an irrevocable trust. Once a trust is established, only the beneficiary or beneficiaries possess the power of termination, which is exercised by renouncing the trust. This means a beneficiary has advised that he does not want the benefits of the trust.
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Benefits
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Avoiding the probate process is a benefit of an irrevocable trust. When the grantor dies, the assets in an irrevocable trust pass to the beneficiaries without the need of any involvement from a probate court. Avoiding estate taxes is a benefit of establishing an irrevocable trust.
Warning
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Take care regarding the appointment of a trustee. The trustee possesses complete power to make decisions and to oversee the trust. A trustee must not only be trustworthy but needs experience in handling financial issues, including investments of the type contained within the trust.
Considerations
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Ensuring the proper drafting of an irrevocable trust agreement oftentimes requires the assistance of legal counsel. Retaining a trust attorney will ensure the appropriate structuring of an irrevocable trust. The local and state bar associations maintain directories of attorneys in different practice areas, including trust law. Contact information for these organizations is available from the American Bar Association:
American Bar Association
321 N. Clark St.
Chicago, IL 60654-7598
312-988-5000
abanet.org/barserv/stlobar
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References
Resources
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