Because an irrevocable trust has many complex financial implications, anyone considering using such an estate planning tool should consult an experienced estate planning attorney, tax professional, or other wealth management professional. Such income tax would be payable by the trust itself, which impacts the beneficiaries. Another potential perk of moving assets into an irrevocable trust is to eliminate income taxes payable by the Trustor on income earned by those assets. ![]() This can result in the estate totaling less than the federal estate exemption, eliminating estate taxes altogether on the Trustor’s death. This permanent removal of assets from the Trustor’s ownership and control, even if he is allowed to use them, means that they do not exist in the Trustor’s estate when he dies. ![]() While a Trustor may choose to name himself as Trustee of a revocable trust, he cannot do so with an irrevocable trust. For all intents and purposes, those assets no longer belong to the Trustor, but to the trust, to be managed by a Trustee. Assets placed in an irrevocable trust become property of the trust permanently. ![]() The primary reasons for establishing a revocable trust include income and estate tax consequences. While a revocable trust offers flexibility, allowing the Trustor to add or remove assets, or change any of the trust’s terms he likes at any time.īy contrast, an irrevocable trust is a rigid estate planning tool that offers a number of financial benefits not provided by a revocable trust. The decision must then be made whether or not the Trustor wants to be able to make changes to the trust. Irrevocable TrustĮstablishing any type of trust begins by setting up a living, or “inter vivos,” trust, which goes into effect during the individual’s lifetime. When Harold passes away eight years later, the successor trustee takes over management of the trust, distributing the assets to the couple’s children as directed in the terms of the trust. Harold continues to manage the trust, and to use the assets, including living in the family home. Fifteen years later, Helen passes away and, because she is no longer able to make decisions regarding the trust, it becomes irrevocable. The couple transfers ownership of their assets, including their home, two cars, vacation property, and savings and investment accounts into the trust, naming themselves as co-trustees. Helen and Harold set up a joint revocable trust for the benefit of their three children. Once the second spouse dies, the assets of the joint revocable trust are distributed to the couple’s named beneficiaries. Depending on the value of the estate upon the first spouse’s death, there may be federal estate tax consequences at this time. When one spouse passes away, the trust remains in effect to the benefit of the surviving spouse. A joint revocable trust specifies that, while both spouses are living, the assets, income, and principal of the trust are payable to one or both of spouses as they choose. The couple’s assets are transferred into ownership of the trust and managed by a Trustee. ![]() Joint Revocable TrustĪ joint revocable trust is a single living trust created by a married couple together. A Trustor may, if he likes, name himself as Trustee, to manage the trust during his lifetime, with a successor Trustee to take over the responsibilities after his death. Because the Trustor maintains control over all of the assets in a revocable living trust, such a trust does not avoid estate taxes, which become due when the assets are transferred to his heirs or beneficiaries after his death. The term “revocable living trust” refers to a revocable trust that goes into effect while the Trustor is still living. Revocable Living TrustĪ revocable is created and funded during the Trustor’s lifetime, but the terms of the trust may not go into effect until the Trustor’s death. A revocable trust avoids going through the probate process, making it possible for the Trustor’s assets to be distributed according to his instructions in the trust immediately after his death. Most living trusts are revocable by default, allowing the Trustor to make changes as his circumstances or desires change. What is a Revocable TrustĪ revocable trust not only allows an individual to specify who will receive his assets after death, it can provide a method of managing those assets while the Trustor is still living. A trust created by an individual that may be revoked, altered, or amended by the Trustor during his lifetime.
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