It seems funny, but the assets in any trust are owned by the trust and managed by the trustee, for the benefit of the beneficiary(s).
The question of who owns the assets in an irrevocable trust is no different: the trust owns the assets. Under the law a trust is considered its "own person", and may own assets. While the irrevocable trust owns the assets, it's the trustee who exercises control over them, e.g. their investment, distribution or other - while the designated beneficiaries benefit.
Revocable vs. Irrevocable Trust
The ownership, trusteeship and benefit of an irrevocable and revocable trust do not differ. The difference is a revocable trust can be revoked at any time, whether by the creator of the trust (grantor), judge or other. This means there is no asset protection as the relationship can be unwound with ease.
An irrevocable trust differs because it cannot be so easily revoked. This isn't to say it cannot be under any circumstances. Some take irrevocability too literally, but it's not easy and your creditors cannot unwind the trust simply because you lost a judgment.
What is an Irrevocable Trust?
An irrevocable trust, as its name suggests, cannot easily be revoked. This is beneficial for asset protection, tax and estate planning purposes.
Such a trust is created by the grantor for the benefit of beneficiaries. Fortunately, in Wyoming, you may be the grantor AND beneficiary. This atypical arrangement allows both asset protection and control over the assets - which isn't possible in other jurisdictions.
What Happens When the Grantor Dies?
The grantor can be the beneficiary, but the death of the former doesn't render the trust instrument void. Rather, the assets remain under control of the trustee (in our preferred case the private trust company), while the benefit flows to the named beneficiaries.
Functionally speaking the trusteeship flows to the successor trustee, but with a PTC this means nothing changes. The grantor, which is possibly you, has passed, but the trust and assets continue uninterrupted.
After the grantor passes, the successor must do the following:
- Every beneficiary must be told the trust exists
- Assets in the trust need appraised
- Distributions will be made as mandated
- Create an affidavit acknowledging the assumption of duties
- File the former grantor's last tax return
Who Controls an Irrevocable Trust?
Every trust, revocable or irrevocable, is controlled by the trustee. A revocable trust can have you, as an individual, as the trustee; but an irrevocable trust requires a trustee that is not the grantor, or their family. We recommend a trust company, preferably a private trust company.
Irrevocable Trust Trustee
The trust must have a valid trustee. In most states, this means a resident person of that state, public trust company or private trust company.
We don't generally recommend a public trust company given their high fees and general lack of responsiveness. You may choose a natural person, but they may not have the skill set, or longevity, needed to manage a trust.
For most families we find a Private Trust Company is the best option. This allows both the needed distance from the grantor for tax and asset protection, while also keeping the assets within close enough reach to be effectively managed.
Beneficiary of an Irrevocable Trust
The beneficiary of a trust is flexible. You may choose yourself, family, friends, yet to be born grandchildren, a charity or any other organization. Those upset with their family have even named a pet as a final send off.
We generally advise using yourself as the beneficiary during your lifetime, making this a self-settled trust, with the benefit passing to who you choose after your lifetime. This provides benefits and control when you're alive, with those you choose accruing the benefit afterward.
Can You Add Assets to an Irrevocable Trust
Yes, you can add assets to an irrevocable trust. You can also remove, or distribute, them as needed. Adding, or funding, assets is acceptable so long as done correctly. Mostly this is done when your personal assets are sufficient and you want the excess to be protected.
Irrevocable Trusts for Dummies
To be honest, such structures are not for those seeking an easy fix. There are no simple solutions to how an irrevocable trust, or any trust, works. A trust functions as it should, but the largest danger of an irrevocable trust is not knowing how it functions. Speak to a trust attorney before engaging upon this path, whether ours or other, to save much pain.
When does an irrevocable trust end? In Wyoming irrevocable trusts are protected against the rule against perpetuities, that is trusts in Wyoming don't end for 1,000 years.