Creating an irrevocable trust may be one of the best things you’ll do when planning your estate.
A trust moves money and assets from one person (or entity) to another. This legal document allows you to state who receives your assets, and how and when they receive them. A trust can provide you and your family members with peace of mind when the unthinkable happens.
A trust has two main parties: the grantor who creates a trust and the beneficiary who receives the assets. A trust can have several beneficiaries, and each can receive different assets. A third party, known as the trustee, officially holds and manages the assets and property included in the trust.
Trusts can be revocable or irrevocable – the main difference between the two is that one can be changed and the other cannot. The grantor can change a revocable trust, as long as they are competent, and this makes revocable trusts more flexible.
Irrevocable trusts, by comparison, are less flexible because they usually require a court order or approval by all the trust’s beneficiaries. The exact rules for changing an irrevocable trust vary between states – in California, for example, an this type of trust can be changed (or revoked) if all the beneficiaries of the trust and the trustee agree.
An irrevocable trust provides a number of benefits for both the grantor and the beneficiaries. An estate planning attorney may recommend setting up an irrevocable trust for tax and estate considerations.
In this type of trust, the grantor gives up their control of the property. This transfer of property can reduce taxes, protect assets against claims from creditors, and provide other benefits.
Since this trust transfers property from the grantor to the trust, the grantor no longer owns the property in the eyes of the law. This means that the assets managed by an irrevocable trust are generally not subject to estate taxes.
Irrevocable trusts reduce income taxes by eliminating any income generated by the property named in the trust.
Putting assets in an irrevocable fund helps beneficiaries avoid probate, which can be a lengthy and complicated court proceeding that authenticates a will, establishes an executor, names the beneficiaries, and distributes assets. Avoiding probate allows for easier and faster transfer of property to the beneficiaries.
With revocable trusts, assets in the grantor’s name are subject to creditors, including ex-spouses and tax authorities. California law protects assets in an irrevocable trust. In many cases, the assets named in an irrevocable trust are protected from creditors, or can at least provide hurdles.
To learn more about the benefits of an irrevocable trust in Sonoma County, CA, consult with estate planning attorney Charles D. Stark. With more than 45 years of experience, attorney Stark has established a strong record of success in helping clients reach their estate planning goals. Call his office today at 707.527.9900.