An irrevocable trust is not for everyone, but the benefits it offers might be the answer to your question, “How do I protect my assets.” By transferring title to a trust they will remain safe from the prying hands of creditors and the judges that oversee lawsuit settlements.
The benefits of an irrevocable trust become stronger the longer the trust has been in existence. For that reason it’s best to begin sooner rather than later.
A trust represents the legal relationship between three parties. The grantor of a trust gives legal authority to a trustee to manage assets for a beneficiary or a group of beneficiaries. Rules define which of the two types of trust you form - a revocable or an irrevocable trust.
The most significant difference between an irrevocable trust and a revocable trust is about change. With a revocable trust, the grantor can easily change or terminate the terms of the trust, as long as the grantor is considered legally competent to make the changes. On the other hand, the grantor of an irrevocable trust cannot change or terminate the terms of the trust without the legal consent of the beneficiary or beneficiaries.
Because of the finality of an irrevocable trust, the legal agreement requires a firm commitment from anyone who wants to establish such a trust. The trust not only protects assets during your lifetime but can be used as the foundation of an estate plan.
This type of trust protects your assets against the legal actions taken by creditors. It also reduces your estate tax liability, which is an important benefit for grantors who want to pass on their assets to beneficiaries in a tax efficient manner.
An irrevocable trust is the most effective way to shield assets from creditors. This is a significant benefit for business owners who want to protect business assets against liquidation to pay personal debts.
Doctors and lawyers also benefit from asset protection, as a lawsuit settlement cannot touch the assets set aside in an irrevocable trust. Alternatively, even if you cannot pay back a business loan, the lender cannot gain access to the assets you have put into this type of trust.
Typically, taxpayers who have large estates benefit the most from the formation of an irrevocable trust. Leaving more than what the IRS allows for a lifetime tax-free gift subjects your beneficiaries to a federal estate tax that runs 40 percent. If you put the same assets into an irrevocable trust for your beneficiaries then tax minimization is significantly easier to achieve.
You will work closely with a family law attorney specializing in creating trusts to set one up that protects your personal and/or business assets. As the grantor of the trust, you must name the trustee and the beneficiary or beneficiaries of the trust. All three parties agree to the terms of an irrevocable trust, with how the assets are to be used as the most important part of the fiduciary agreement.
After your lawyer creates the agreement for an irrevocable trust, you sign the document, and fund the trust by changing titles to the trustee. Once you transfer assets, you no longer have control over the assets because the trust now owns them and they’re managed by the trustee, either a public or private trust company.
Learn more about the benefits of setting up an irrevocable trust by scheduling a free consultation with our family law attorney.