The irrevocable trust is a familiar term to many people. However, despite the general familiarity with the term, most people are only vaguely aware of what an irrevocable trust actually is and for what purpose one might create a trust. Others hold the mistaken belief that trusts, and especially irrevocable trusts, are only for individuals with significantly more income and assets than themselves. However, you don’t have to be a multi-millionaire or a billionaire to benefit from a trust. Most individuals and families can benefit from an irrevocable trust to further their gifting and tax minimization and tax avoidance strategies.
The experienced estates and trusts attorneys of NewPoint Law Group can offer advice and guidance regarding the transfer of wealth from one generation to the next. We can also explain how individuals can utilize an irrevocable trust to protect assets from creditors, minimize estate tax, or provide for family members with special needs. To schedule a free and confidential consultation with and experienced estates and trusts lawyer call the NewPoint Law Group at 1-800-358-0305 or contact us online.
Understanding the Concept of an Irrevocable Trust in California
The irrevocable trust is simply a trust where the grantor, the person creating the trust, generally cannot change the terms and provisions after its creation. Furthermore, property that is transferred into an irrevocable trust is transferred permanently. When an individual transfers property into a trust, the legal ownership of the property changes hands from the grantor to the trustee. Thus, when property is transferred, the grantor cannot recover the property without the permission of the trustee who administers the trust and the beneficiaries.
However, California law contains some unique provisions that do permit changes and some level of flexibility when dealing with an irrevocable trust. For instance, an irrevocable trust can be changed or modified upon petition of one or more beneficiaries who can make a showing that the dissolution serves the best interests of the beneficiaries and does not harm other beneficiaries. Similarly, due to changed circumstances beneficiaries could petition for a change that they believe is in accord with your original intent. California law also permits the trustee to petition for a court order to modify or dissolve the trust due to changed circumstance even if the trustees do not consent.
For What Purposes Can an Irrevocable Trust Be Used?
The irrevocable trust can be used to accomplish a variety of estate planning goals. In the hands of an experienced and strategic attorney these trusts can be used to accomplish goals including:
- Protection of life insurance proceeds – An irrevocable life insurance trust can shield the proceeds paid out by a life insurance policy from claims creditors may make against an estate. Absent estate planning, the proceeds may also be subject to estate taxes.
- Special Needs trust – If a loved one has special needs, but a direct gift would impact his or her eligibility for government benefits, a trust of this type can provide financial support and allow the purchase of items to support the special needs individual. However, because he or she never actually owns the property in the trust, eligibility for government benefits is left undisturbed.
- Split interest goals involving charity – A splint interest trust is often an irrevocable trust where the grantor of the trust receives a regular payment from the trust for some period of years or until a triggering event, such as the death of the grantor occurs. Upon the triggering of this event, some other beneficiary, often a charity, receives the remaining property in the trust.
- Reduce taxes for transfer to next generation – One type of irrevocable trust, the grantor retained income trust (GRIT) can allow for the transfer of certain assets to a closely-held business or other entity for a period of years. This asset can then generate interest or appreciate while the grantor retains the right to receive the income and derives tax benefits.
- Estate tax reduction – Generation skipping trusts can be used by wealthy families to reduce estate taxes that would otherwise be imposed due to a transfer of property or assets to the next generation.
- Spendthrift trusts – For individuals who would wish to provide a large gift to a family member, but worry that the individual is not yet mature or disciplined enough to protect and grow the gift, a trust of this type can be effective. Likewise, this type of trust can also be effective if you’d like to give a gift but worry about the recipient’s creditors claiming the asset.
The above represented only a selection of the potential uses and benefits the appropriate use of irrevocable trusts can provide. Many other estate planning options are available, such as revocable trusts and the traditional will, that may better serve your goals and circumstances.
Rely on an Experienced Trust and Estate Lawyer in California
The trusted and experienced attorneys of the NewPoint Law Group can devise an array of estate planning tools to effectively and efficiently accomplish your goals. To discuss how our services can help you achieve estate planning or charitable giving objectives call us at 1-800-358-0305 or contact us online.