What Is the Meaning of an Irrevocable Trust?
A trust is one of the most powerful tools that you can use during the estate planning process. When setting up a trust, you have a few options. One of the most commonly used types of trust is the irrevocable trust. This type of trust gives you some advantages that other trusts cannot provide.
Other People Are Reading
-
Irrevocable Trust
-
The irrevocable trust is a type of trust that cannot be changed once you set it up. In comparison, once you set up a revocable trust, you can still change any of the terms at any point. With an irrevocable trust, the only person who can change any of the terms of the trust arrangement would be the beneficiary of the trust. Revocable trusts typically convert to an irrevocable trust arrangement once the creator of the trust dies.
Estate Taxes
-
One of the primary reasons people use irrevocable trusts is to try to avoid estate taxes. Once you put assets into an irrevocable trust, they are removed from your estate. Any assets not in your estate when you die are not included in the total value of the estate. This means that the rest of your estate has a better chance of getting under the estate tax exemption. This can help your beneficiaries keep more of your assets.
-
Creditors
-
Another reason that many people use irrevocable trusts is to avoid creditors. When assets are held in a regular revocable trust, your creditors could still seize them if they had a judgment against you. Once assets are put into an irrevocable trust, you cannot lose them to creditors because they are not technically part of your estate any longer. This allows you to keep your beneficiary's inheritance intact regardless of whether you owe money.
Loss of Control
-
Even though the irrevocable trust can be beneficial for avoiding taxes and creditors, it also has some potential drawbacks. For example, when you put assets into an irrevocable trust, you lose full control of these assets. The beneficiaries could then gain access to the assets and you may not be able to say what happens to them any longer. If your situation changes through a divorce or some other circumstance, you might find yourself losing assets to someone you no longer have connections with.
-
