Is an Irrevocable Trust Right for You?
When it comes to asset protection and tax planning, an irrevocable trust can be a powerful tool—if carefully funded, structured, and managed.
You may be familiar with the terms “revocable trust” and “irrevocable trust,” but which one is the best fit for your situation? Let’s explore the differences and why an irrevocable trust might be worth considering.
Understanding the Basics
Both types of trusts are legal entities designed to hold and protect assets. Each has a designated trustee responsible for managing the trust’s assets and ensuring they are handled in the best interest of the beneficiaries. However, the level of control the grantor (the person who creates the trust) retains is where these two trusts differ significantly.
A revocable trust offers maximum flexibility. The grantor can act as the trustee and make changes to the trust’s terms, including who the beneficiaries are or what assets are held. However, this flexibility comes with less protection—assets in a revocable trust remain accessible to creditors during the grantor’s lifetime.
On the other hand, an irrevocable trust offers robust protection but at the cost of control. Once assets are placed in an irrevocable trust, they cannot be easily removed, and the terms cannot be modified without the consent of the beneficiaries. This loss of control may seem daunting, but it also comes with valuable benefits, including tax advantages and shielding assets from creditors.
Different Types of Irrevocable Trusts
Not all irrevocable trusts are the same. For instance, a Domestic Asset Protection Trust (DAPT) allows the grantor to be both the creator and a beneficiary of the trust. However, this type of trust must be established in one of the select jurisdictions that allow such an arrangement, which is something your estate planning attorney can guide you through.
Funding an Irrevocable Trust
Carefully planning how to fund an irrevocable trust is crucial. Timing is everything—attempting to transfer assets into an irrevocable trust during a lawsuit or when the IRS is involved could lead to legal issues. A court might invalidate these transfers if they’re seen as attempts to avoid creditors.
Next Steps
If you believe an irrevocable trust might be the right option for protecting your assets and ensuring your estate’s legacy, the first step is to consult with an experienced estate planning attorney. At The Barber Law Office, we can help you determine the best strategy for your specific situation, guiding you through decisions like selecting trustees, beneficiaries, and funding sources.
Estate planning isn’t something to put off. If you’re ready to explore whether an irrevocable trust fits your financial goals, we’re here to help.