An irrevocable trust is an arrangement that allows a trustee to hold assets on behalf of a beneficiary that cannot be modified or terminated unless there is permission from the beneficiary. The grantor essentially removes his or her rights to ownership of the assets by placing them in the trust and giving sole power of modification or amending to the named beneficiary. This type of trust is in contrast to a revocable trust, which does allow modification or termination by the grantor. Irrevocable trusts have the tendency to be complicated enough that it is best to enlist the services of an attorney.
WHY CREATE A FLORIDA TRUST?
Decide Your Terms: A trust allows you to dictate when exactly you want your beneficiary to inherit the assets. There is no required time frame for transferring assets following a death.
Keep Your Terms Private: There is no public record of your trust’s terms when it is not involved in probate. Simply leaving a will, however, creates privacy concerns. A will is filed with the court and any interested party can search the information.
TYPES OF IRREVOCABLE TRUST
There are two types of irrevocable trusts: a living trust and a testamentary trust.
An individual starts and funds a living trust during their lifetime. A few examples of living trusts are an Irrevocable Life Insurance Trust (ILIT) and a Charitable Remainder Trust. An Irrevocable Life Insurance Trust is configured to accept death benefits when your passing occurs, so as to avoid including their value in your estate. This is done for tax purposes. A Charitable Remainder Trust is used to first pay any beneficiaries then distribute its remaining balance to a charity. It can be set up in the reverse way, as well. Both methods provide an itemized deduction for charitable giving.
A testamentary trust is established by a deceased individual’s will. It is irrevocable in this sense because the will serves as the grantor’s final say on its conditions. The trust is funded by the estate of the deceased, as laid out by specified terms. It is only possible to amend or cancel a testamentary trust prior to the grantor’s passing.
Many states have rules in place that allow for beneficiaries to undo an irrevocable trust in the event that unforeseen circumstances transpire, which have rendered certain trust conditions difficult or unfavorable. Generally, this requires unanimous consent from all beneficiaries. Additionally, it is possible to stipulate flexibility into the conditions of the trust to account for those possible unforeseen consequences.
HOW IRREVOCABLE TRUSTS WORK
There are three main components to a trust: the grantor, the trustee, and the beneficiary. When the grantor puts assets in the irrevocable trust, he or she can determine the conditions and uses of those assets but can no longer revoke them. The trustee administers the trust in accordance to its specified purpose. And the beneficiary is the recipient of the trust’s assets.
There are several applications for trusts in estate planning and distribution:
Prevent the misuse of assets by a beneficiary by setting conditions.
Gift assets while retaining income from those assets.
Reduce tax liability of an estate through property transfer.
Gift a residence to family under better tax conditions.
Protect assets against potential lawsuits.
Because of its complex structuring and legal and tax implications (both current and future), enlisting the service of an attorney is the best practice when creating an irrevocable trust. An expert can ensure that your assets are managed and transferred according to your wishes and that you don’t run into any legal or tax pitfalls. Additionally, an attorney will know the most current estate-planning advice and practice.