Mark Glendon

Types of Irrevocable Trusts

People often work with an asset protection lawyer to establish trusts. These legal arrangements ensure assets are distributed according to the trustor's wishes. Not only do trusts help families transfer wealth down through generations, but they also protect individuals from being taken advantage of by family members or friends, reduce tax liabilities and probate costs, and provide ongoing professional management of one's assets. Let's take a closer look at one type of trust, called an irrevocable trust.

What is an irrevocable trust?

An irrevocable trust is a type of trust that can't be modified, amended, or terminated without permission from the grantor's beneficiary or beneficiaries. For example, if you place $100,000 in an irrevocable trust for your granddaughter and then change your mind several years later, you cannot move any of that money because you no longer own it.

Generally, irrevocable trusts are established for estate and tax considerations because it removes ownership of the trust's assets from the grantor's taxable estate. The grantor is also not liable for any income that's generated by the assets in an irrevocable trust.

However, a person may also establish an irrevocable trust for the following reasons:

• To give a primary home to children under more favorable tax rules.
• To house a life insurance policy.
• To secure eligibility for government benefits like Social Security, Medicaid, or care for a special needs child.

Types of irrevocable trusts

There are two types of irrevocable trusts: living trusts and testamentary trusts. Here's the difference between the two:

• Living trust: An irrevocable living trust takes effect during the life of the grantor.
• Testamentary trust: A testamentary trust is a trust that is created while the grantor is living, but that takes effect after they have passed away.

If you'd like to place some of your assets in an irrevocable trust, you will need to decide whether you want to establish a living trust or a testamentary trust, depending on when you want it to take effect. Based on your wishes, an attorney can help you determine which type of irrevocable trust is best for you.

Hire an asset protection lawyer

Setting up an irrevocable trust can be tricky, so hiring an asset protection lawyer is necessary to help you. If you plan to create one, you'll also want to consider the legal fees involved in doing so.

Author Resource:-

Mark writes often about estate planning. His articles may include topics like real estate closing attorney and business succession laws to help the people in needs. You can find his thoughts at real estate law blog.