Avoid Probate and Taxes with Irrevocable Trusts
Two of the goals of careful estate planning for many people, especially those with large estates, are to avoid probate and to eliminate or reduce loss of assets to federal and state estate taxes and New Jersey inheritance taxes. Both of these goals can be accomplished by creating an irrevocable trust to hold some of the assets of your estate. When you create an irrevocable trust, you are surrendering control of the assets it holds. The only control you exert over the trust resides in the terms you dictated when creating it. Once created, an irrevocable trust cannot be undone, except by its trustee and beneficiaries. But as the settlor of the trust, you can set it up so that you retain the income produced by the trust, even though you can’t access the principal.
An irrevocable trust has advantages and disadvantages, so you will need to discuss these carefully with your estates and trusts lawyer.
Advantages of an Irrevocable Trust
These are six good reasons that your estate planning attorney may recommend creating an irrevocable trust:
- An irrevocable living trust protects those assets it holds from estate taxes by removing the assets from your estate, because the trust, rather than the grantor, is the owner of the assets.
- You can structure an irrevocable trust in such a way as to legally sidestep capital gains taxes.
- An irrevocable trust protects the assets it holds from your creditors.
- If you should someday become incapacitated and need long-term nursing home care, Medicaid can’t go after the fund’s you’ve placed in an irrevocable trust, because they no longer belong to you.
- An irrevocable trust can be used to accomplish your philanthropic goals and provide you with a charitable tax deduction when you transfer assets to a charitable trust to support a worthy cause.
- Placing funds in an irrevocable trust saves the time, effort, and money associated with the often complex probate process.
Depending on your situation and that of the beneficiaries for whom you are considering creating an irrevocable trust, you should also consider these potential drawbacks:
- You will no longer have control over the assets you place in the trust. That will now reside with the trustee you’ve selected. An irrevocable trust can be revoked only by court order under unusual circumstances or with the consent of all trust beneficiaries.
- An irrevocable trust becomes a separate taxable entity. The trustee must file a tax return for the trust if it earns more than $600 in a given year and must report any distribution made to beneficiaries. The tax rate is generally higher than the rate on regular income for an individual.
- Assets placed in an irrevocable trust over a certain exempt amount may be subject to gift tax. Your attorney can advise you as to the exclusions available to you to avoid the gift tax.
Whether or not this type of trust is appropriate for you and your heirs is something you will need to discuss at length with an experienced estate planning attorney.
Select an Experienced Attorney Before Creating a Trust
There are many different ways to establish an irrevocable trust, and you will need to have a skilled estates and trusts attorney to guide you through the detailed and complex process of planning and creating the trust, selecting a trustee, and filing the extensive paperwork that is required. Before deciding on the suitability of this device as your estate planning tool, your attorney will need to become thoroughly familiar with your total financial picture and goals for the estate, to determine if it is the best choice for your unique situation. It is imperative that you consider all the ramifications before acting, because once the trust has been created, you can’t go back and change it.
Estate Planning Advice You Can Trust in the Jersey Shore Area
To find out if creating an irrevocable trust is right for you, call the firm of Barnes Law Group, LLC, to arrange a consultation with our thoroughly experienced estate planning attorneys. Put our 20 plus years of estate planning experience behind you when making the decisions that will affect your legacy and the well-being of your heirs for years to come. We serve the entire Jersey Shore area, including Cape May and Atlantic Counties, and have offices conveniently located in North Wildwood and Egg Harbor Township.