Revocable and irrevocable trusts are important estate-planning tools. Basically, these trusts are legal documents that detail specific assets and the distribution of those assets. However, the specific situation and intended purpose are what dictates what type of trust (revocable versus irrevocable trust) is appropriate for every situation; a local attorney can give advice on the right type of trust and draft a legal document custom to the specific situation.
What is the purpose of an irrevocable trust?
The purpose of an irrevocable trust is to set aside an asset for the benefit of another party. This party can be an organization or individual. Different types of assets can be placed in a trust, such as life insurance or a financial account. Because an irrevocable trust applies only to a specific asset (or assets), other estate-planning documents should be drafted to address other situations, such as designating a guardian for minors.
The benefit of an irrevocable trust is that because the asset is in the trust, it is not subject to estate taxes (because an irrevocable trust is separate from the estate), the probate process, and legal action and judgments. An irrevocable trust can save a significant amount of funds and expedite the process at the time of effect (when the guarantor passes). An irrevocable trust can also be drafted so that even though the asset is set aside, interest from the asset in the trust is still received as income.
What makes an irrevocable trust different than a revocable trust?
A revocable trust can be modified; once an irrevocable trust is established, for the most part, the trust cannot be altered. Unlike a revocable trust, an irrevocable trust is not set up for situations where the guarantor is incapacitated, such as from an illness or accident. An irrevocable trust doesn’t usually take effect until the guarantor’s death.
What goals can an irrevocable trust accomplish?
The specific type of irrevocable trust that should be drafted depends on the financial goals and circumstances surrounding the beneficiaries. An irrevocable trust can provide for another entity, such as a charitable trust. A spendthrift trust can be set up for situations where the beneficiary should only receive a set amount of the asset over time. To determine what is the correct irrevocable trust for the situation, contact an experienced estate planning attorney that can assist with process from the start to the finish.