The Uses of an Irrevocable Trust

An irrevocable trust keeps assets safe to benefit the heirs.

An irrevocable trust keeps assets safe to benefit the heirs.

You might think of an irrevocable trust as an invisible place to hide your stuff for the benefit of your family or heirs. It can even protect your heirs from themselves, should they grow up to be the type of people who have a hard time holding onto money. An irrevocable trust may stipulate how much is distributed to your heirs in a certain time frame and how they can spend or handle what they inherit. An irrevocable trust protects assets in the trust from estate and income taxes. The grantor, or creator of the trust, cannot alter, change, modify or revoke the trust once it has been created.

Trust Stands Alone

The trust agreement determines how assets are distributed upon the death of the grantor. If you create the trust, you become separated from the assets in your trust during the life of the fund. When you place assets in a trust, you have little or no control over the trust property. Because you are no longer legally the owner of these assets, the assets become excluded from your taxable estate. The grantor of the trust transfers the legal title of the assets and property to a trustee, who administers the assets for the benefit of trust beneficiaries.

Asset Protection

With an asset protection irrevocable trust, you can protect your cash and assets from creditors. The trust also protects assets from future creditors or liabilities that may occur. The irrevocable trust removes assets from your ownership. Creditors cannot touch assets in the trust because the court considers the trust as a separate entity. You have not reserved the right to revoke the trust, so you have separated yourself from the assets in the trust.

Tax Protection

An irrevocable trust for estate tax protection guards assets in the trust that you don’t want included in your taxable estate. An irrevocable life insurance trust allows you to own life insurance policies in which the death benefit is not taxed from your estate. The benefits to a spouse, children or other heirs are protected from creditors and estate taxes. Stocks in the trust have been removed from your estate and cannot be taxed as part of the estate. You can also sell your business to an irrevocable trust. Your children or heirs inherit the business without paying estate tax. An irrevocable trust can also allow you to purchase property or a new business inside the trust, so the assets are removed from your estate at the time of the purchase. You can design your trust as a gift trust to provide unlimited amounts to the trust without gift taxes.

Protecting Your Family

Assets set aside for the security of your family may provide conditions that must be met for beneficiaries to receive money from the trust. You can make sure property is used for certain purposes over a certain length of time. You can also help your heirs by making sure they do not receive too much money from the trust for or over a given period of time or spend money from the trust for the wrong purposes. Irrevocable trusts also protect children or heirs in case of divorce. As a separate entity and not part of the marital estate, the assets in the trust are not in either spouse’s name and cannot be divided upon divorce.

About the Author

Jerry Shaw writes for Spice Marketing and LinkBlaze Marketing. His articles have appeared in Gannett and American Media Inc. publications. He is the author of "The Complete Guide to Trust and Estate Management" from Atlantic Publishing.

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