Many people in Greenwich, Connecticut, don’t like to think about death, but it is important to have clear estate plans for their eventual passing. If there is no estate plan, the court may decide who gets the assets. One type of estate planning tool to avoid this problem is an irrevocable trust.
Overview of irrevocable trusts
An irrevocable trust is a trust that cannot be modified without approval of the beneficiaries. It commonly involves three parties: the grantor or trust creator, the beneficiary and the trustee. Once the assets move into the trust, the grantor loses control over them. The trustee manages the trust for the grantor and carries out instructions after their death.
An example of an irrevocable trust includes charitable remainder trusts, which leaves money to charity and pays beneficiaries the balance. A grantor creates a testamentary trust during their lifetime, and it becomes active after their death. However, it must go through probate to ensure that it is valid.
When irrevocable trusts are beneficial
Irrevocable trusts can serve as tax reduction strategies for grantors with sizeable estates. The current threshold before an estate must pay federal taxes is $11,580,000 with a 40% tax rate. Even if the trust exceeds that amount, the courts cannot remove assets.
Grantors who work in professions subjected to lawsuits may want to consider irrevocable trusts. These trusts keep assets from creditors and legal judgments if the grantor dies with debt.
If the debtor needs government insurance, such as Medicaid or Social Security income, they must meet strict income limits. Irrevocable trusts “shelter” assets and lower the net worth of the grantor to help them qualify.
While trusts aren’t just for the wealthy, they can be complex and require careful consideration. A grantor should discuss their situation with an attorney before setting up an irrevocable trust.