Featured:
Allergies
Grilling Guide
eHow Now Blog

Can an Irrevocable Trust Be Part of a Revocable Living Trust?

Organizing trusts can be difficult, especially if you want to retain the ownership of some pieces of property while still allowing others to benefit. A revocable living trust allows you to use your property but avoid probate after your death, and an irrevocable trust is a firm commitment to provision of others. Fortunately for astute estate planners, the two forms can be combined to create a structure that benefits the donor and her planned beneficiaries.

  1. Trust Law

    • A trust is a means to convey property for another’s benefit, but placing it under the control of a trusted administrator to ensure the property is properly maintained. There are three basic parties to a trust. A settlor donates the property to the trust and establishes the terms. He creates a document that specifies who is going to benefit from the trust, how the property should be distributed, and how the property should be maintained. The beneficiaries are the ones identified in the original organizational document to receive the benefits of the trust. The final party is the trustee, who manages the trust for the beneficiaries in accordance with the procedures established by the settlor when he established the trust. Trusts operate under state law, which means there are varying rules depending on where the trust is located. For general discussions, using the Uniform Trust Code (UTC) is the best framework in which to operate since at the time of publication it has been adopted by 23 states, is being considered by three others and has been endorsed by the American Bar Association.

    Irrevocable Trust

    • An irrevocable trust’s terms cannot be altered or terminated without the consent of the beneficiaries. In most states, this is the default; absent words in the organizing trust document to the contrary, a trust is presumed to be irrevocable. This means that when the settlor creates the trust, he loses all rights of ownership to the underlying property. The benefit to the settlor from this is that the trust’s property cannot be included in his estate and any income generated by the property is not taxable to the settlor.

    Revocable Living Trust

    • A revocable trust is one that the settlor can modify or revoke without the beneficiaries’ consent. A living trust is an entity that holds a settlor’s property with the settlor as a trustee. The purpose for this type of trust is for estate planning. When the settlor passes away, the terms of the trust automatically dictates how the property is to be distributed without having to put the property through the probate process. The tax burden of the assets within a revocable trust rests with the settlor since he retains ownership.

    Revocable and Irrevocable

    • Under the UTC, any person can create, benefit from or be the trustee of any sort of the trust. How the UTC defines a “person,” however, is quite expansive and includes individuals, corporations and trusts. Therefore a revocable life trust can be a part of an irrevocable trust, and vice versa, in any possible capacity.

    Considerations

    • If you are creating, seeking to modify or terminating a trust, consult with a licensed attorney. Remember that all state codes regarding trusts are slightly different, so double-check the relevant sections of the law to make sure that you are in compliance. While every effort has been taken to ensure this article’s completeness and accuracy, it is not intended to be legal advice.

Related Searches:

References

Comments

Related Ads

thumbnail
Featured