Estate planning includes many types of legal documents. Most people have a binder full of paperwork by the time they finish. It can be easy to get lost without the guidance of an experienced attorney. If you’re considering creating a trust, have you thought about whether it should be a revocable or an irrevocable trust?
Jack spent his life building his medical practice. As a result, he had a lot of assets to divide among his children and grandchildren. He knew he wanted to set up a trust so he could specify when his grandchildren would be able to access their inheritance, but he didn’t realize there were two types of trusts to consider.
After meeting with his attorney, they decided that an irrevocable trust would suit Jack and his family best. Although this type of trust can’t be changed, it would protect his assets from lawsuits if his medical practice was sued. Jack’s family appreciated that he took the time to get his affairs in order and even saved them the headaches of probate by choosing a trust. Although the irrevocable option is a very permanent choice, in Jack’s situation it provided protection and peace of mind.
What is a trustee?
In addition to deciding what type of trust to use, you’ll also name a trustee. This is the person who will manage your trust. Nobody can change or end an irrevocable trust – not the grantor, the trustee, nor the beneficiaries. Trustees have several duties and legal responsibilities, including:
- Distributing the trust to beneficiaries based on the trust’s specifications
- Handling trust accounts and finances
- Overseeing assets
- Paying bills
If the beneficiaries feel the trustee is incompetent or unable to manage the trust, they can petition the court to appoint a successor trustee.
What is a beneficiary?
A trust can have one or more beneficiaries. These are people who will inherit money or assets under the terms written in the document. Sometimes, but not always, one of the beneficiaries is also the trustee. If you’re the beneficiary of an irrevocable trust, you may:
- Ask the trustee to produce reports about the trust at any time
- Petition the court to remove the trustee if you feel they’re unable to manage the trust properly
- Receive copies of all documentation relating to the irrevocable trust
- Receive payments from the trust as specified (monthly, yearly, age-specific, etc.)
According to the IRS, the person who creates the irrevocable trust can’t be named as a beneficiary. This could be an attempt to abuse trust tax laws.
3 Reasons You May Need an Irrevocable Trust
In Jack’s situation, an irrevocable trust offered a way to protect his estate from lawsuits. There are a few additional reasons people choose the permanency of the document, including:
- Minimizing estate taxes. An irrevocable trust removes the taxable assets from the grantor’s estate. Additionally, the assets included in the irrevocable trust aren’t included in the gross value of the estate. This can help reduce tax obligations.
- Protecting your assets. Unfortunately, some people are subject to lawsuits because of their professions (architects, surgeons, etc.). By including them in an irrevocable trust, the assets are protected from lawsuits as well as creditors.
- Protecting your beneficiaries. Disabled people on limited incomes may lose healthcare or other benefits if they receive a large amount of money from an inheritance. An irrevocable trust can protect elderly or disabled beneficiaries.
Whether you choose a revocable or irrevocable trust, you can determine how and when the assets are distributed. Some people choose to have a certain amount of money given on a special day each year. Others name the age when a minor child can begin receiving benefits. Some people get very specific and state conditions, such as graduating from a particular university, before the funds can be accessed.
Life is full of surprises, so most people are uncomfortable creating an irrevocable document to state the distribution, terms, and rules for their assets. Working with an experienced attorney will allow you to decide which documents will best serve you and your loved ones.
Work with Someone You Trust
As you work together with Ogborne Law, you’ll discover what you and your family need. We take the time to review your situation, ask questions that make you really consider what’s best for your loved ones, and guide you through the process of creating your estate plan.
Whether you need to revise your existing estate plan or you’re just getting started, contact Ogborne Law today.
Engaging with an attorney to protect your family is never an easy step. Whether you need to protect your family from the unthinkable or restructure your family through collaborative divorce, we’re here to help. When you’re ready to schedule a consultation with Michelle Ogborne, please visit the scheduling page to get started.