SCHEDULE A CONSULTATION

Why consider an irrevocable trust?

Why consider an irrevocable trust?
A variety of estate planning tools are available these days, but one we see used frequently is an irrevocable trust. This tool allows you to gift assets in the way you choose, provides tax benefits, and allows for creditor protection. And, irrevocable trusts can be used for reasons other than estate planning, so it might be helpful even if you don’t consider yourself especially wealthy.

Elderly coupleWhat is an irrevocable trust?

An irrevocable trust is a trust that cannot be modified or terminated without the consent of the beneficiary (the person for whom the trust was created and who receives the benefits of the trust). It differs from a revocable trust, the terms of which can be changed by the grantor (the person who creates the trust) at any time. It is an effective tool for estate planning and creditor protection because it transfers ownership of trust property out of the hands of the grantor. In order to take advantage of these benefits, generally the grantor is not the trustee (the person who oversees the property in the trust).

A grantor may be able to retain the income flow of the assets for a specified length of time, so the gift into an irrevocable trust is different than just an outright gift. For example, a mother might put her residence in an irrevocable trust for her children but specify that she will continue living in the house during her lifetime.

Estate planning

An irrevocable trust is a valuable estate planning tool as it allows you to place property, including proceeds of insurance policies, into a trust. The assets are not included in the taxable estate of the grantor, so appreciation of those assets is then exempt from estate tax, and probate is also avoided on those assets.

Depending on the value of the assets, there may be a requirement to file a gift tax return and use part of the grantor’s lifetime exemption (under current law, up to  $5 million can be exempt from estate tax) when contributing assets to the trust. An irrevocable trust is a tool to set up generation-skipping trusts, which allows a grantor’s children to receive income from and use trust assets without having the assets included in the child’s taxable estate.

Other reasons for using irrevocable trusts

In addition to estate planning, irrevocable trusts can be used for the following reasons.

  • Providing for family members who are minors, have disabilities, have addiction problems, or are financially irresponsible. This is one of the most common reasons that grantors set up irrevocable trusts.
  • Making charitable gifts while retaining income.
  • Protecting assets from divorce proceedings.
  • Providing for education needs of family members.
  • Protecting assets from possible creditor judgments.
  • Providing a plan for assets if long-term care issues are a concern.

Irrevocable trusts require careful planning when drafting, as it is a permanent transfer of assets. The tax benefits and consequences can be quite complex, and grantors should seek the advice of professionals, both legal and tax, before drafting and funding any trust.

For more information on the use of irrevocable trusts, contact your WK advisor at (573) 442-6171 or (573) 635-6196.


OTHER STORIES FOR YOU
ESTATE PLANNING IN THE WORLD OF PORTABILITY. The federal estate tax was once a major concern for many individuals. That is no longer true on account of a dramatic increase in the federal estate tax exemption and a relatively new feature in the law called “portability.” These changes have been made “permanent,” meaning they will remain in force unless and until legislation changes them.
TAX BENEFITS OF CHARITABLE DONATIONS. Whether you are donating cash, stock, used goods or your time, charitable donations provide a benefit to the recipient organizations and the community. As a bonus, they can help reduce your taxable income. We’ve summarized some basic information you need to know when making charitable donations.
TRADITIONAL VS. ROTH IRAS – WHICH IS BEST FOR YOU? Choice is a good thing, but informed choice is even better! When it comes to selecting a retirement savings vehicle, you can choose between traditional and Roth Individual Retirement Accounts (IRAs), which have unique advantages and tax consequences. To get the most benefit from your savings, carefully evaluate the differences between traditional and Roth IRAs, consider your personal circumstances, and choose the IRA that works best for you.

Posted By Nancy Hill, CPA on 9-3-2015 | Topics: Articles,