Are Irrevocable Trusts Somehow More “Powerful” Than Revocable Trusts?Share this post
What is an Irrevocable trust?
In general, the only way to obtain tax advantages using a trust is to give up ownership. Irrevocable Trusts require you to give up legal title (ownership) to any property and that can never be changed. Revocable trusts, on the other hand, do not require giving up ownership and may be changed. But, there are no tax advantages to revocable trusts.
Revocable trusts are primarily used for control and management of assets. The revocable trust usually becomes irrevocable upon your death.
An irrevocable trust is simply a kind of trust that cannot be changed or canceled after the document has been signed. This sets it apart from a revocable trust, which can be altered or terminated and only becomes irrevocable when the trust maker, or grantor, dies.
When a grantor sets up an irrevocable trust, he gives up control of the assets placed in the trust. This creates a completely separate tax entity because the trust isn’t managed or controlled by the grantor, and it’s not yet controlled by the heirs or beneficiaries.
The trust pays its own taxes, and it’s typically managed by a trustee. Moreover, the grantor cannot modify or revoke the trust, without the consent of the beneficiaries or the trustee.
Why use an Irrevocable Trust?
Typically, irrevocable trusts are used to reduce or avoid estate taxes. They also are used to meet other goals, such as to protect assets from being wasted or misused or to protect assets of an individual with a disability.
You can save a lot on estate taxes and still have an irrevocable trust with enough flexibility to meet your changing goals. Learn more about estate taxes and planning today.