The Uses of an Irrevocable Trust
A trust is a legal formality that allows you to hold property in a specific way and for a specific purpose. Most trusts are revocable, which means they can be terminated or revoked by the trust creator at any time. However, an irrevocable trust, which can only be terminated with the consent of the trust beneficiaries, can provide additional benefits beyond what a revocable trust provides.
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Trusts and Probate
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After you die, somebody has to gather all your money and property and disburse that property to your surviving heirs. For most people, this takes place in a court-managed process called probate. One of the primary reasons for creating a trust, whether revocable or irrevocable, is that any property owned by the trust does not have to go through your personal probate when you die. Therefore, an irrevocable trust can save time and money by helping your property avoid probate.
Taxes
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Although the detailed requirements are quite complicated, an irrevocable trust can provide additional income and estate tax savings that are not available under a revocable trust. The income and estate tax rules relating to irrevocable trusts are complicated, and constantly changing, so tax avoidance is something that should be overseen by an estate planning expert. Certain types of irrevocable trusts can help reduce income taxes, but a revocable trust can never provide income tax savings.
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Creditor Avoidance
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Property owned by an irrevocable trust may be protected from your personal creditors, or from the personal creditors of any of the trust beneficiaries. When you transfer property to the irrevocable trust, this means you have no right to unilaterally take that property back from the trust. This in turn means that your creditors also have no right to withdraw that property from the trust, which means the property is generally protected from your creditors. However, if the trust makes any disbursements to you, then your creditors will be able seize the disbursements.
Family Protection
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Another use of an irrevocable trust is to provide limited, controlled financial support to family members or other loved ones. If you create an irrevocable trust and transfer property to that trust, then the property in the trust cannot be accessed by either your spouse, your ex-spouse, your children, or anybody else except according to the express terms of the trust agreement. This allows you to protect property not only from creditors, but also from family members who might be irresponsible or untrustworthy.
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References
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