What is an Irrevocable Trust?
An irrevocable trust may be part of your estate planning process. The term irrevocable refers to the fact that once the property is transferred into the trust, that property remains in the trust. A good way to think of it is that these assets now belong to the trust rather than to the person who transferred them into the trust. This is different from a revocable trust, since that property can be removed at a later date. Revocable trusts can also be terminated at a point in the future as well.
The main difference between a revocable and irrevocable trust has to do with the estate and tax consequences. Since the assets put into an irrevocable trust are transferred out of the owner’s holding, they are removed from the estate. This means that any death taxes associated with those items are taken away. Items in a revocable trust, however, are still connected to the estate, and for that reason, death taxes may be owed.
The main reason to inform yourself about the difference between these two trusts is in the event that your estate value is nearing the federal estate tax exemption level. Other reasons to consider using trusts is to cut down on the time spent dealing with probate. Trusts allow you as the owner to have some control over what happens to your belongings and assets when you pass away, reducing time that would have been spent in probate court.
There are three different pieces to an irrevocable trust when it comes to the people involved. The settlor is the person setting up the transfer of the assets into the trust, the trustee is the person appointed to manage the trust, and beneficiaries, who are named by the settlor to receive those assets placed within the trust. The trustee actually maintains the legal title to the property while those assets are inside the trust, and the beneficiaries have what is known as the equitable title.
If you’re thinking about setting up an irrevocable trust, you want to receive as much guidance as possible, since the terms cannot be changed. While this type of trust offers many people a sense of control over what happens after they pass away, it can also be nerve wracking to stipulate the terms of the irrevocable trust. This is why it’s necessary to work directly with a professional to set up the trust itself. This will also give you peace of mind that it’s structured as you envisioned it.