Common Uses of an Irrevocable Trust
The attorneys for the Chilina Law Firm are estate planning attorneys and as such, we are often asked what exactly is an irrevocable trust (as compared to a revocable trust) and when are irrevocable trusts commonly used. An irrevocable trust cannot be changed unless the beneficiary provides his or her consent to the changes and certain other requirements are met. This is unlike a revocable trust, where the grantor — the person creating the trust — has the opportunity to make changes or end the trust at any time. Typically, once a grantor creates an irrevocable trust, he or she places their assets into the trust and their ownership rights to said assets are transferred entirely to the trust and forever revoked. However, California law does allow for an irrevocable trust to be modified or canceled, yet the procedures and processes to do so are complicated and expensive (attorneys’ fees, court filing fees, etc.) and there may be other expenses incurred like taxes.
So why would someone wish to create an irrevocable trust?
The main reason is to preserve the estate for the grantor or beneficiaries. This includes protections from taxes, prevention of misuse of assets, and the ability to gift assets to a beneficiary. Another use of an irrevocable trust is to protect the grantor’s assets from potential future creditors. Once the assets are placed into the irrevocable trust, they are no longer taxable to the grantor of the trust. Due to complications surrounding the tax laws of California, it’s best to ensure the irrevocable trust is properly created through an estate planning attorney and in coordination with an accountant.
Because irrevocable trusts are just that – irrevocable, they are not in the best interests of everyone and are used in limited circumstances on a case by case basis.
One example of when an irrevocable trust may be beneficial is when a grantor has a large estate or asset(s) that will benefit from being protected by estate taxes once the grantor passes away. An irrevocable trust will help those with assets exceeding the federal estate tax exemption limit ($11.18 million for 2018) from estate taxes applicable upon death. It is also important to consider a life insurance policy that, if paid out, would put assets above the aforementioned exemption amount; placing the life insurance policy in the irrevocable trust will also avoid taxation upon the grantor’s death.
While complex, an irrevocable trust can definitely benefit certain individuals and married couples in specific estate situations. Before deciding upon an irrevocable trust, consult with an experienced estate planning attorney to determine if it is right for you, such as the knowledgeable estate planning attorneys at the Chilina Law Firm.
Authored by Karen Chilina and Co-Authored by Greg Chilina
Contact Chilina Law by clicking HERE
Attorney Advertising: The content of this blog/article is merely to provide general information on a topic of law and should not be construed as legal advice or the formation of a client-lawyer relationship. A client-lawyer relationship with the Chilina Law Firm will be created only through a written agreement signed by all parties. Anyone reading this blog/article should not rely on the information provided alone and should seek independent counsel regarding your specific situation. Should this blog be considered advertising or solicitation under California law, this blog conforms to and is compliant with the California Rules of Professional Conduct, rule 1-400, regarding Attorney Advertising and Solicitation.