As you plan your estate, you might be considering whether an irrevocable trust should be part of your asset protection plan. You’ve worked hard for your money and want to protect your finances, but in order to protect your assets, you need to have an asset protection strategy in place.
There are many things to understand about irrevocable trusts and the money you use to fund them. What happens if you change your mind? What happens if you want access to this money in the future?
Read on to learn more about irrevocable trusts and whether you can get your money back out of one if you put it in there.
What Is an Irrevocable Trust?
In an irrevocable trust, all the assets are effectively transferred to a grantee, legally removing ownership rights from the grantor. This means that the terms cannot be changed, modified, or terminated without the named beneficiary’s approval.
An attorney and a financial planner can help designate a trustee and beneficiaries needed. This is an important decision as the trustee becomes in charge of the trust and all the assets associated with it. You will no longer own those assets or have access to them.
This type of trust is an alternative to a will deciding how your belongings and property are distributed to your heirs. Even though you cannot act as the trustee and essentially are giving away your assets, there are tax benefits related to this decision.
Assets From an Irrevocable Trust
In the simplest terms, once you transfer assets to the trust, they belong to the beneficiaries, and moving them back out is very challenging.
However, the benefits are significant and often make it worth it in some instances. The assets put in the trust can’t be touched by probate and won’t get taxed, removing estate taxes and other tax reductions.
It is also essential to know that the terms of an irrevocable trust can never become a matter of public record because it is not subject to probate. In the case of a will, it must be filed with the courts and thus public record, meaning anyone can read it.
Changes to an Irrevocable Trust
It is important to remember you do not have the authority to take assets back out. You must be sure of your decision moving forward with this asset protection strategy.
Even though it is difficult to make changes and is a bit more complicated, it can be done with stipulations.
The trustee and any named beneficiaries would need to agree to a change mutually. They would need to decide that removing assets would best serve the trust and would need to go to court to explain the reasoning.
Even then, the assets could not come back to you directly. A new trust would need to be set up in most cases, and the assets would be transferred.
Types of Irrevocable Trusts
Several available options qualify as irrevocable trusts, and we will go over three for consideration:
Irrevocable Life Insurance Trust
An irrevocable life insurance trust designates a beneficiary of your life insurance policy. The proceeds of any insurance policy are paid into the trust upon your death. This option helps avoid estate taxes on large life insurance payouts.
Irrevocable Marital Trusts
Under an irrevocable marital trust, assets are transferred from one spouse to another upon the first spouse’s death. An approved trustee manages the assets, essentially keeping the assets outside the estate.
The grantor decides what the surviving spouse can receive in income from the trust and the withdrawal limits. Any assets remaining after the death of the last spouse will go to any named beneficiaries free of estate taxes.
Irrevocable Charitable Trusts
There are also two types of irrevocable charitable trusts, a charitable lead trust and a charitable remainder trust.
A charitable lead trust allows you to designate certain assets to charitable organizations, and the remainder goes to your beneficiaries when you die.
A charitable remainder trust allows you to receive income from your assets for a set time period, and then the remaining assets go to your designated charities. You cannot change your agreed-upon payout amount regardless of changes in your lifestyle.
Understanding Assets in an Irrevocable Trust
While there are some profound tax benefits to putting assets into an irrevocable trust, you need to be quite sure of the move as it is difficult to terminate. Irrevocable means you are not able to make changes after the trust is established.
This is where meeting with an Estate & Trust Attorney is key.
If you have questions about setting up an estate plan or are considering an irrevocable trust, we can help. Contact us today to set up a meeting to find the best solution for your estate needs.