When estate plans are modified to accommodate changing family goals and needs, an irrevocable trust may sometimes be discussed. While they offer many advantages, these trusts must be entered into cautiously since they are so permanent. An irrevocable trust is not recommended for every circumstance.
The Pros and Cons
Using an irrevocable trust for your estate plan can be a wise choice under certain circumstances. Some of the advantages of using an irrevocable trust include:
- Reducing estate and income taxes
- Protecting trust assets from creditors of your beneficiaries
- Protecting trust assets from beneficiaries who may spend or use the assets wastefully
There are, of course, drawbacks to amending your estate plan to utilize an irrevocable trust. These potential disadvantages include the following:
- Irrevocable trusts are inflexible. It may be difficult or impossible to modify the trust’s terms later.
- Irrevocable trusts often contain complex trust terms.
- Once placed into an irrevocable trust, the asset is no longer that of the person creating the trust. The grantor fully surrenders ownership over the assets when re-titling them into the name of the irrevocable trust or trustee.
- Income tax earned by irrevocable trusts is taxed separately from the creator of the trust and is taxed at a higher rate.
- Irrevocable trusts must file their own income tax returns, which can require effort and professional fees.
Clearly, given the various pros and cons of using an irrevocable trust as part of your estate plan, it is best to seek guidance from an experienced professional. Learn more about how we have helped other clients by viewing our client testimonials page.