The majority of estate plans that have a trust include a revocable, or “living” trust. A living trust allows the grantor (the person who created the trust) to continue altering the trust throughout their life. An irrevocable trust, however, is essentially set in stone once it is created, unless the beneficiary gives permission to make modifications. Irrevocable trusts cannot be modified or terminated by the grantor because once they create the trust and put assets into it, those assets belong to the beneficiary. Irrevocable trusts have many uses, and an attorney can not only help you create one, but also answer any questions you have about them and how an irrevocable trust can help you.
Benefits of Setting up an Irrevocable Trust
Why would someone want to set up an irrevocable trust and essentially give away their hard-earned money, investments, and property when they could just as easily write a check? In 2017, the maximum non-taxable gift amount is $14,000 for a single person and $28,000 for a couple. The maximum lifetime non-taxable gift amount is $5.49 million, according to TurboTax. By putting your money into an irrevocable trust, you bypass the gift tax. Additionally, if you leave a very large inheritance, what you leave behind may also be taxed if it exceeds $5.5 million (or $11 million per couple). An irrevocable trust bypasses this estate tax. What else does an irrevocable trust do? Examples are as follows:
- Granter does not have to deal with the tax liability on income generated by the assets they set aside into the irrevocable trust;
- Minimize taxations when transferring principal residence to children; and
- Prevents misuse of assets by beneficiaries, as the conditions could allow for only a set amount of money to be withdrawn each month, as an example.
Choosing a Trustee for an Irrevocable Trust
You will not be able to take advantage of the tax benefits if you (the grantor) put your own assets into a trust for a beneficiary and you are the trustee yourself. You must choose a third party to act as the trustee. Careful consideration must go into who you choose to fill this important role.
Would You Benefit From an Irrevocable Trust?
Only 0.2 percent of estates pay estate tax, according to the Center on Budget and Policy Priorities. Few people would benefit from an irrevocable trust, but if you have large assets, you may be in this category. An attorney can also help explain to you the many other types of trusts that can help you avoid heavy taxation, such as a skipping generation trust.
Call Maryland Estate Planning Attorney Tara K. Frame Today
Creating an irrevocable trust is more complicated than a living trust. Once you put your business, assets, bank account, investments, or life insurance into an irrevocable trust, you lose all ownership, while the terms and conditions of the trust must be approved by both the trustee and beneficiary. You need to work closely with an attorney in order to maximize your tax exemptions and accomplish what you want with the irrevocable trust. We strongly encourage you to talk to a Pasadena attorney with the law offices of Frame & Frame today at 410-255-0373.
Resources:
cbpp.org/research/federal-tax/repealing-estate-tax-would-provide-windfall-to-heirs-of-wealthiest-estates
turbotax.intuit.com/tax-tips/estates/the-gift-tax/L1sFpFeXV