Trusts are among the most important tools used in estate planning. An irrevocable trust is, in a nutshell, a trust that cannot be altered or revoked. Once created, it is in place and cannot be changed. Such a trust may not be useful in some circumstances, but in many it is quite valuable. College Station trust lawyers can help you ascertain whether an irrevocable trust is right for your needs, and if so, what type is most appropriate
Kinds of Irrevocable Trusts
There are two basic types of irrevocable trusts: testamentary trusts and irrevocable living trusts. An irrevocable living trust is also called an Inter Vivos trust, and is created by the grantor and funded from assets in his estate. As will be seen, there are many different types of irrevocable trusts. A testamentary trust is one that is created after the death of the grantor.
As mentioned, a testamentary trust is created after death. It is, in essence, an extension of a will, and allows for control of the distribution of assets to beneficiaries. A grantor may, for instance, want to make sure that his children/beneficiaries do not squander the money from the estate. The will may direct that a trust be set up to distribute assets according to a particular schedule. This can be a certain sum per year or a percentage.
Irrevocable Living Trusts
An irrevocable living trust is created while the grantor is still alive. It is termed a “living trust” by virtue of the fact that it goes into effect while the grantor is alive. Once created, it cannot be revoked. There are many types of irrevocable living trusts, a few of which are as follows:
- Bypass Trust. Used exclusively by married couples, this is used to minimize the amount of estate tax that might be due at the death of the second spouse. This occurs as follows: when the first spouse passes away, a large percentage of the assets in the estate are placed in the trust. The surviving spouse can use these assets, but does not own the trust. When the second spouse passes away, the assets in the trust are not included in the estate for tax purposes. This keeps them out of reach of probate as well.
- QTIP Trust. Again, a trust for couples. This trust delays payment of estate taxes until the second spouse dies.
- Charitable Trusts. There are several types of charitable trusts, but each is designed to benefit a charity and at the same time reduce the amount of money due for estate taxes.