Possessing significant assets often means thinking out of the box when it comes to protecting them. Like some, you may have considered executing an irrevocable living trust as a means of asset protection.
However, irrevocable trusts do not make sense for everyone. Estate planning is unique for every individual and knowing your options for asset protection prior to moving forward is key.
The Benefits Of Irrevocable Trusts
Arguably the number one reason that our clients establish irrevocable trusts is due to the tax and estate benefits. Once assets are placed in an irrevocable trust, those assets are not counted towards your taxable estate.
In addition, assets in irrevocable trusts are protected from creditors, unlike revocable trusts. This ensures that your estate will not be squandered and that there will still be assets left to inherit.
Are There Any Downfalls To Irrevocable Trusts?
Not many people relish the idea of handing over control of such a significant amount of assets. For some, however, they feel a sense of relief that their assets will be controlled by a trustee of their choosing.
A second downfall is the permanency of the trust terms. As the name implies, once an irrevocable trust has been established, the terms cannot be modified. However, California has recognized some exceptions to this rule.
Another perceived downfall can be that a trust is a taxable entity by the IRS. Your trustee may be required to file federal income taxes based on how much the trust earned. Income taxes can be far more than your individual taxes.
Finally, any contributions made to a trust can be taxed as a gift if you exceed your annual exception amount.
Consider consulting an estate planning attorney to learn if an irrevocable trust is right for you.