ARTICLES

Using Irrevocable Trusts

A Trust is created by a document executed by the person creating the Trust, sometimes called a grantor, trustor or settlor. A Trust instructs the person managing the Trust, the Trustee, as to the management and ultimate disposition of certain property. While the Trust holds legal title to the property, the property is held for the benefit of another person or organization. Trusts are a very flexible tool and can be used to accomplish many very different purposes. A fundamental attribute of all Trusts is whether the Trust is revocable or irrevocable.

Irrevocable Trusts

An Irrevocable Trust is one which may not be undone by the Grantor. Assets placed in the Trust may not be removed from the Trust by the Grantor and ultimate disposition of the property must be in accordance with the provisions of the Trust. The beneficiaries of an Irrevocable Trust may not be changed. Additional assets may be placed in the Trust by the Grantor, but subject to gift tax rules. Irrevocable means, when the assets go into the Trust, those assets are no longer the assets of the Grantor, but of the Trust. Those assets have been given away and will be used for the benefit of persons other than the Grantor.

Benefits of an Irrevocable Trust

Management
Assets in an Irrevocable Trust are managed by the Trustee which may not be the Grantor or their alter ego. Management of the Trust is unchanged by the incapacity or death of the grantor.

Probate
Assets in an Irrevocable Trust are not subject to probate. Those assets continue to be managed or at some time distributed by the Trustee in accord once with the wishes of the Grantor as found in the Trust. Avoiding probate not only saves significant expense, but also relieves family members of dealing with the demands of probate after losing their loved one. There are situation in which the probate process should not be avoided, but those situations are somewhat rare.

Asset Protection
The assets are owned by the Trust for the benefit of the beneficiaries and are no longer available to the creditors of the Grantor.

Assurance
The Grantor can have a high level of assurance that assets will available to benefit the beneficiaries, subject, of course, to investment risk and trustee integrity.

The Process

Understanding the significance of these benefits it would easy to come to the incorrect conclusion that the process is difficult and expensive. Rather, the process can be simple.

In consultation with an attorney the Grantor creates and executes a Trust instrument. The Grantor transfers all desired assets into the Irrevocable Trust, subject to the need for a Federal Gift Tax Return and property appraisals.

The Irrevocable Trust is an entity for purposes of Federal and State income tax. Therefore, the trustee is responsible for preparing and filing tax returns as needed.

Trusts are an under-utilized tool to manage assets. Trusts need not be complex to create, nor difficult to manage. A Trust is often the "simple" solution but should be created and funded only in consultation with your attorney.