An irrevocable trust is one whose terms can’t be modified, amended, or terminated without the beneficiary’s or beneficiaries’ permission. As an estate planning tool, irrevocable trusts protect assets, reduce estate taxes, get government benefits, and access them. Based on your financial situation, an estate planning attorney can help you decide which and if an irrevocable trust is right for you.
Types of Irrevocable Trusts
- Charitable Remainder Trust (CRT). A Charitable Remainder Trust provides an income stream for the donor for years or life. The assets are transferred to the named charity at the end.
- Charitable Remainder Unitrust (CRUT). Charitable remainder unitrusts let wealthy people avoid tax liability by donating money to educational institutions.
- Grantor Retained Annuity Trust (GRAT). This financial instrument as part of an estate plan allows grantors to minimize tax hits on large financial gifts to loved ones. They are made for a specified amount and distributed over time as an annuity.
- Qualified Personal Residence Trust (QTIP). A qualified terminable property trust permits a spouse to gift a life estate without incurring a federal gift tax.
- Intentionally Defective Grantor Trust (IDGT). This intentionally defective trust allows the Trustor to avoid income taxes on assets that tax laws do not recognize assets transferred away as taxable.
- Special Needs Trust (SNT)and Third-Party SNT. This special trust is meant to preserve regular income for a chronically ill or physically or mentally disabled relative.
- Spousal Lifetime Access Trust (SLAT). SLAT allows one spouse to make a gift into a trust for the other spouse and possibly other family members while removing assets from their combined estates.
- Qualified Personal Residence Trust (QPRT). This trust allows the creator to remove personal property from their estate to reduce gift tax.
- Dynasty Trust | Legacy Trust. This dynasty trust is used to pass wealth on from generation to generation without incurring transfer tax, such as the gift tax or the generation-skipping tax.
- Irrevocable Life Insurance Trust (ILIT). Once the grantor has contributed any property or life insurance death benefits to a trust, they cannot change the terms or claim back designated properties.
- Charitable Lead Trusts (CLT). This initial trust puts cash and property aside to provide an income stream to a designated charity through a gift, income, or estate tax deduction for the donated assets.
Irrevocable Trusts—the Downside
The primary disadvantage of an irrevocable trust is that once the assets are added, the Trustor/Grantor no longer has access to the estate assets. It’s important to consider other downsides.
- The inability to modify them
- Trustors cannot serve as trustee
- Lose control of assets
- Cannot be changed or altered
- Inflexible legal structure
- Assets may revert to the estate if the grantor dies before the trust term matures
- Incurs federal income tax liability earnings exceed more than $600 in a taxable year
Let’s Talk Trusts
The Law Offices of Michael K. Lanning, APLC, specializes in financial planning and wealth counseling. We’re committed to helping our clients and can help you build a wealth protection strategy that aligns with your unique needs and objectives for a sound financial future. Depending on your financial situation, irrevocable trusts may or may not be right for you—there’s only one way to find out. Contact us at 310-820-1600 or go to our website to learn more and set up a consultation.
We serve West Los Angeles, Santa Monica, Pacific Palisades, Manhattan Beach, and the surrounding Los Angeles communities.
The Law Offices of Michael K. Lanning, APLC
11777 San Vicente Blvd.
Suite 750
Los Angeles, California, 90049
