The terms of an irrevocable trust may not be amended or
modified and the trust itself cannot be revoked. While trusts are often used in estate planning,
irrevocable trusts are not as common as revocable trusts. Residents of Fort Wayne, Indiana and other
states would benefit from a basic review of trusts. Such a general review will assist in a more
detailed discussion of the purposes and applications of irrevocable trusts.
A trust is an agreement between the person establishing the
trust, known as either a trustor or a settlor, and a trustee. The trustee becomes the legal owner of the
property owned by the trust. The trustee controls the property but holds it for
the benefit of someone else, known as the beneficiary. When the settlor transfers property to the
trustee of an irrevocable trust, the settlor forever loses the right to possess
the property. For this reason, an irrevocable
trust may not be right for everyone.
Irrevocable trusts have distinguishing attributes. The settlor creates an irrevocable trust and
transfers property to the trustee while the settlor is living. This lifetime transfer is different from testamentary
trusts which are funded only at the time of the settlor’s death. Since irrevocable
trusts are funded during the settlor’s lifetime, the settlor has the ability to
evaluate the trustee to ensure assets are handled appropriately.
Another distinguishing attribute of an irrevocable trust is
privacy. By law, the property that the
settlor has transferred to the irrevocable trust is no longer owned by the
settlor and not included in the settlor’s estate. Therefore, these assets do not pass through
probate, which are court-supervised proceedings and part of the public
record. Privacy as to the extent and
nature of assets is afforded by irrevocable trusts.
Another feature of an irrevocable trust is its permanency. Aside from certain unusual circumstances, an
irrevocable trust will not be revoked until a time established by the trust
itself. This is different from revocable
trusts, which beneficiaries may cancel, modify, or revoke at any time – with court
approval and unanimous agreement among the trust’s beneficiaries.
Perhaps the most compelling feature of an irrevocable trust
is the ultimate minimization of death taxes. The assets of revocable trusts are subject to
death taxes because they are deemed owned by the settlor at death. By contrast, assets transferred to irrevocable
trusts avoid death taxes under current federal law and many state laws.
Notwithstanding the advantage of death tax minimization made
possible by irrevocable trusts, there are gift tax implications associated with
this type of trust that an estate planning attorney will be able to address in
light of your specific situation. The
triggering of gift taxes will be assessed at the time an irrevocable trust is
established during your lifetime. Although
the minimization of death taxes is a strong benefit of irrevocable trusts, the
triggering of potentially significant gift taxes, and their timing, should be
considered carefully by the settlor before selecting the irrevocable trust