An irrevocable trust is a powerful estate planning tool that can provide individuals with significant control and protection over their assets, both during their lifetime and after their passing. Designed to be unchangeable once established, an irrevocable trust offers numerous advantages, such as minimizing estate taxes, shielding assets from creditors, and ensuring a smooth transfer of wealth to beneficiaries. At Klenk Law, we specialize in helping clients navigate the complexities of irrevocable trusts and craft personalized strategies that align with their unique goals and circumstances.
The experienced team of attorneys at Klenk Law recognizes the importance of comprehensive estate planning and the crucial role that irrevocable trusts play in securing financial legacies for future generations. With a deep understanding of trust laws and tax regulations, we offer expert guidance to individuals, families, and business owners seeking to establish irrevocable trusts as part of their estate planning portfolio. Whether you wish to protect your assets from potential creditors, safeguard your wealth for your loved ones, or optimize tax efficiency, our dedicated attorneys are here to provide tailored solutions that address your specific needs and ensure the preservation and transfer of your wealth in accordance with your wishes.
Irrevocable Trusts are essential to estate planning, asset protection, and tax avoidance planning. Once only a tool for the wealthy, Irrevocable Trusts, and the protection they provide, are now available to everyone. Because mastering their use take time, many estate planners do not use Irrevocable Trusts. Avoiding trusts as an estate planning tool is a mistake. These flexible tools are a valuable part of almost everyone’s estate plan.
The Grantor created An Irrevocable Trust, making it impossible to “revoke” the Trust and bring the assets back into his name. This permanent status differs from a Revocable Trust. A Grantor may spontaneously cancel a Revocable Trust. Once the Grantor gives an asset to the Irrevocable Trust, the asset belongs to the Trust. At its most basic level, Asset Protection and Estate Planning with an Irrevocable Trust stem from this fact. If correctly drafted, a person can give assets to an Irrevocable Trust, and future creditors cannot take that asset. The Grantor no longer owns the asset; the Trust owns the asset.
Each Irrevocable Trust must have a Grantor, who is the person who signs the Trust and brings it into existence. The Trust is only a piece of paper, so the trust terms must appoint an individual or entity who will implement the Trust’s terms. The Trustee implements the Trust terms. Once signed, the Grantor or other people may give the trust assets which the Trustee manages for the Beneficiaries.
An Irrevocable Trust is a primary tool in most Asset Protection and Estate Plans. The trusts can own almost any asset while providing shelter from the Grantor’s and Beneficiary’s divorce, creditors, and legal problems. The Trust can help keep assets in the family, and if a jurisdiction like Pennsylvania or New Jersey has revoked the Rule Against Perpetuities, it can last forever. This flexible tool allows Grantors to provide benefits for generations. These valuable benefits arise because once the Grantor transfers ownership of an asset to the Trust, he has surrendered all incidents of ownership over that asset. It is the Trust’s asset now, not the Grantor’s. The transfer can also remove the asset from the Grantor’s taxable estate, avoiding death taxes and shifting the income tax burden away from the Grantor.
An irrevocable trust offers several key benefits that make it a popular choice for individuals looking to protect and manage their assets effectively:
An irrevocable trust provides a robust framework for asset protection, tax planning, and control over your wealth, allowing you to preserve and distribute your assets according to your wishes while minimizing potential liabilities and maximizing the benefits for your beneficiaries.
Though a trust might be an Irrevocable Trust, the facts and circumstances might allow for modification. A Trust Reformation refers to the process of changing an Irrevocable Trust. Learn More HERE.
There is no “one size fits all” Irrevocable Trust. Irrevocable Trusts are flexible tools not subject to easy modification. I would be happy to discuss your circumstances and brainstorm with you about what Trust best fits your needs. Below is a list of some of the Irrevocable Trusts we regularly use, with a link to more detailed information on each.
Trustees of Irrevocable Trusts owe beneficiaries a fiduciary duty. Suppose the beneficiaries believe any action the Trustee took has harmed them. In that case, they can petition the court to review any actions seeking to surcharge the Trustee. If surcharged, the Trustee must pay the damages from the Trustee’s funds.
Almost every Irrevocable Trust allows the Trustee to hire a lawyer to advise and represent the Trustee. Professional Trustees retain in-house attorneys for this purpose and then supplement these attorneys with outside Estate Litigation Lawyers. Professional Trustees seek legal help because professional Trustees know this is a wise decision. Sound, legal advice from experienced Trust Lawyers helps avoid conflict and minimize the chances of litigation. Further, it helps reduce the possibility that the Trustee will make a mistake, causing personal liability.
For more information, go to our Estate Litigation page to learn more about:
Here are some common questions clients, beneficiaries, and Trustees ask:
While an Irrevocable Trust is never a legal requirement, they have many advantages. Carefully analyzing your assets, goals, and heirs’ needs is the only way to judge if a trust is right for you.
Irrevocable Life Insurance Trusts, or ILITs, are designed to hold life insurance. Life insurance is a flexible estate planning tool that can be used with many Irrevocable Trusts. For example, an excellent plan for avoiding conflict in a Second Marriage or Blended Family is purchasing life insurance to fund trusts so your spouse and children from prior relationships can part on good terms. Further, life insurance in Irrevocable Trusts is often a critical component in Business Succession Planning.
A “Corporate Trustee” is a bank or trust company serving as Trustee. Corporate Trustees have fee schedules available on request. Typically, the Corporate Trustee charges a percentage of the Trust’s assets’ fair market value, such as 1.5%. For more information, see our section on Fiduciary Fees. When you ask if the cost is expensive, you must balance the need for a Corporate Trustee with the services provided. A Corporate Trustee is an excellent alternative if no family member is qualified.
Further, an interested person can constantly challenge a fee and have the court review fees. See Fee Disputes. Always balance a Corporate Trustee’s power by appointing a responsible Protector team.
In a Trust, a Protector oversees the Trustee. A Trust Protector typically has the power to remove and replace the Trustee without court approval.
An Irrevocable Trust is, Irrevocable. If you appoint a person or institution as Trustee and later regret that decision, your options to remove and replace that Trustee are limited and expensive. If you include a Protector in the Trust:
Banks and Trusts companies typically charge a percentage of the Trust’s value yearly. Corporate Trustees provide these fee schedules on request and sometimes publish them on websites. For more information, see our Fiduciary Fees article.
Once the bank assumes the trusteeship, they can pay themselves from trust assets. The Trust should balance the bank’s power by appointing a strong Protector team. Learn more about bank trustee fees in our Fiduciary Fees article.
A well-drafted Irrevocable Trust clearly states where assets pass when a beneficiary dies. A good Estate Planning Lawyer asks you what result you wish and drafts the Trust accordingly.
For example, suppose a Bucks County, Pennsylvania client wants me to form an Irrevocable Third Person Special Needs Trust for her grandson in Atlantic County, New Jersey. In that case, I will ask her what should happen to any unused funds at the grandson’s death. She may say any such funds should pass to charity or perhaps in other Trusts to her other grandchildren in Philadelphia. Whatever her wish, I will then incorporate those terms into the Trust. At the grandson’s death, the Trustee follows the Trust’s terms.
There is no such thing as an Irrevocable Living Trust. This is a combination of Revocable Living Trust and Irrevocable Trust. The Grantor may easily modify or revoke a “Living Trust.” To learn more about Revocable Living Trusts, see my articles.
Simply put, the Grantor cannot revoke an Irrevocable Trust; he can rescind a Revocable Trust. These two trust groups have different Estate Planning and Asset Protection purposes.
An Irrevocable Trust can be helpful for Medicaid Planning. In short, the Grantor can form a trust, transfer assets into the Trust and then wait out the Medicaid look-back period. Once passed, the Grantor can apply for Medicaid while the property remains safely in the Irrevocable Trust, sheltered from children’s divorce and creditors. Using Irrevocable Trusts in Medicaid planning is complex. Only attempt such planning after a thorough Estate Planning Lawyer’s analysis.
Irrevocable, meaning no easy revocation. The Grantor cannot shut it down.
A Trust Beneficiary is a person or entity entitled to benefit from a trust.
For example, if a Philadelphia resident executed an Irrevocable Trust naming his brother, also a Philadelphia resident, as Trustee with instructions to give ½ the income generated each year to a nephew and ½ to his church, the nephew and church would be the Beneficiaries of the Philadelphia situs Trust.
A Contingent Beneficiary is a person or entity entitled to benefit from a trust, dependent on a contingency.
For example, if Uncle Bob executed an Irrevocable Trust naming his brother as Trustee with instructions to give $10,000 each year to a nephew. At the nephew’s death, the remainder passes to Uncle Bob’s church. The church is the contingent beneficiary. The church receives the trust funds contingent on anything remaining at the nephew’s death.
A revocable trust, also known as a living trust, is a flexible estate planning tool that allows individuals to retain control over their assets during their lifetime while providing for the efficient transfer of those assets after their passing. Here are some key characteristics of a revocable trust:
An irrevocable trust, as the name suggests, is a trust that cannot be modified or revoked once it is established, except under limited circumstances. It is designed to provide greater asset protection, tax benefits, and long-term planning advantages. Here are some key characteristics of an irrevocable trust:
While both revocable and irrevocable trusts are valuable estate planning tools, they differ in terms of flexibility, control, asset protection, and tax planning advantages. Revocable trusts offer more control and flexibility during the grantor’s lifetime, while irrevocable trusts provide stronger asset protection, tax benefits, and long-term planning opportunities. It’s essential to consult with an experienced estate planning attorney to determine which type of trust best suits your specific needs and goals.
If you have any questions about Irrevocable Trusts or other estate planning topics, please get in touch with our office to schedule a free consultation. Klenk Law has focused only on Estate Law for more than two decades. We’ve seen it all, and this experience allows us to explain complex estate planning techniques clearly and concisely. We make it easy for you to understand Irrevocable Trusts and Estate Planning. You can then make the best decisions for yourself and your family.
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