Irrevocable trusts cannot be revised after they are established. Revocable trusts also become irrevocable after the trustmaker dies. Irrevocable trusts may be comprised of multiple agreements each with a different goal. The following are details on the types and goals of irrevocable trusts including reducing estate taxes, protecting assets, and charitable donations.
Types And Goals Of Irrevocable Trusts
Reducing Estate Taxes
An irrevocable life insurance trust is one way of transferring property from an estate in order to reduce estate taxes. The person who owns the assets and sets up the trust basically transfers their belongings into the trust (to the trustees and beneficiaries) and therefore no longer possesses the assets personally. Those belongings therefore cannot be taxed as part of the estate when that trustmaker passes away.
There are other trusts that can accomplish this same benefit. AB trusts can used to benefit a surviving spouse for a certain exempted amount plus deferment of estate taxes for amounts exceeding the limit. ABC trusts are helpful in states with estate taxes and are helpful when the state tax exemption amount is lower than the federal one.
Most irrevocable trusts can protect family assets. Since property is transferred into the trust and are no longer personal assets, they are hidden from creditors and others who may file personal claims against the trustmaker. Family members can be made the beneficiary of the trust and would still receive the benefit from those assets. This may be an important feature for certain people based on their profession and potential liabilities.
A few types of irrevocable trusts are specifically created for charitable donations. Examples of this are charitable remainder trusts and charitable lead trusts. Trustmakers can transfer assets into a charitable trust while living and obtain a charitable income tax deduction for the tax year. If the transfer takes place after death, then the estate will obtain the tax deduction.
More Information On Irrevocable Trusts
If you are comparing revocable and irrevocable trusts, it is important to understand their differences and benefits as it applies to your personal situation. The above types and goals of irrevocable trusts is merely intended as a basic overview. Contact Peter DaMore at Law Offices of Peter T. DaMore Jr. for further information about trusts and other pieces of your estate plan.