As you are preparing for your future and the future of your estate, you may consider the option of creating an irrevocable trust. An irrevocable trust is a general name for a trust that cannot be altered or changed without permission from the beneficiaries. This arrangement is the opposite of a revocable trust, which is a trust that the grantor can alter at any time in case there are changes in circumstances or a grantor decides to add or subtract beneficiaries. Oftentimes, people assume that they should avoid irrevocable trusts because it may seem daunting to enact a trust that cannot be altered. Most of the time irrevocable trusts are living trusts which means that they go into effect while the grantor is still alive. They can carry on after the grantor has passed on.
Irrevocable trusts may seem intimidating, but they come with tax benefits. Many people are encouraged to use this method of estate planning because of the many tax exemptions that beneficiaries will receive as a result of the arrangement. In addition to reducing taxes, irrevocable taxes can protect property. Because the trust cannot be altered, you can be sure that the standards and rules that you set regarding your possessions will always be honored exactly how they were outlined from the start. If you decide that you do want to create an irrevocable trust for your assets, then there are many different options that you can consider. In fact, there are dozens of different types of irrevocable trusts. A local estate planning attorney can help you to determine which of the many options is best for your lifestyle, but here are a few of the many choices that you can consider.
Some couples may choose to create a QTIP irrevocable trust. This is an arrangement which allows couples to postpone the payment of estate taxes until the second spouse passes away. This will help to reduce the amount of taxes and make things easier for beneficiaries. Similarly, some couples chose to arrange a QDOT trust. This is the same as a QTIP trust but is an arrangement specifically reserved for couples that are made up of one U.S. citizen and one non-citizen. As well, you can consider an irrevocable life insurance trust. This is a trust that reduces estate taxes because it removes the proceeds of life insurance from the taxable estate. In this arrangement the trust will own the life insurance policy and the beneficiary will be able to benefit from the finances therein. In a life insurance trust, the trustee cannot be the grantor.
Instead, it has to be a third party who has never been an owner of the policy. Laws declared that the grantor cannot have any authority over the life insurance trust after it has been organized because the money has already been placed into a different account. The trust must be live for at least three years before the grantor’s death to be upheld after his or her passing. Another popular trust arrangement is a generation-skipping trust. This is a trust that will name grandchildren as beneficiaries, rather than the decedent’s children.
These trusts are used when an individual does not want to offer finances to his or her children or when that individual chooses to grant a child the income from the trust but no ownership of the property. This way, the trust property is not subject to estate tax when the child dies. This type of trust can sometimes be subject to a generation skipping transfer tax, but can save money in the long run if the child who would have inherited the money is elderly or may pass away soon. As well, attorneys can help you to draft an irrevocable bypass trust if this is your preference. This is a trust that is used by spouses to reduce estate taxes. It goes into effect when the second spouse dies. In this arrangement, when a spouse dies the bulk of his or her property will be placed into the irrevocable trust where it will remain for the other spouse to use and spend. The surviving spouse will never be named as the owner of the trust properties, however, so that when he or she passes away the property will not be included in that individual’s estate.
Another common kind of irrevocable trust is a charitable trust. This is a trust that is set up to give a financial gift to a charity that was dear to the decedent’s heart. There are three different options when setting up a charitable trust. A grantor can create a charitable lead trust, which will allow the individual to put property in a trust and name a charity to receive income from the trust for a set amount of time. After this amount of time has concluded, a beneficiary will gain ownership of the properties.
In a charitable remainder trust, the grantor will place property in the trust and name a charity as the final beneficiary. This is the opposite of a charitable lead trust, because a beneficiary will be permitted to obtain the income form the trust for a set amount of time before the finances are awarded to the charity. The last kind of charity trust that you can organize is called a pooled income trust. This is best if you are planning to pool your money together with other individuals and you want to collectively gift finances to the charity. In these arrangements, the charity will be listed as both the trustee and the final beneficiary. There are only a few of the many options regarding irrevocable trusts, so if you have more questions you shouldn’t hesitate to contact a local estate planning lawyer!