Under California's “Rule Against Perpetuities,” an interest in an irrevocable trust must vest or terminate either within 21 years after the death of the last potential beneficiary who was alive when the trust was created or within 90 years after the trust was created.
The downside to irrevocable trusts is that you can't change them. And you can't act as your own trustee either. Once the trust is set up and the assets are transferred, you no longer have control over them.
After the grantor of an irrevocable trust dies, the trust continues to exist until the successor trustee distributes all the assets. The successor trustee is also responsible for managing the assets left to a minor, with the assets going into the child's sub-trust.
If you want to ensure continued support for someone, or protect assets into the future, an irrevocable trust is a way to set up an extended payment schedule or protect property from creditors.
Trusts usually end when the settlor dies or when one of the beneficiaries dies, but sometimes a trust ends after a certain period of time or after a certain event takes place, like when a beneficiary gets married or reaches a certain age. There are other reasons a trust can end, however.
Some trusts naturally end as a result of specific event occurring, such as a beneficiary reaching the age of inheritance or on the death of a life tenant. Other trusts, such as Discretionary Trusts, usually end when the trustees exercise their powers to bring the trust to an end and distribute all of the assets.
If the grantor specified an “end date” or condition for the trust, then the trust would end once that date is reached or that condition is fulfilled. When a trust ends and there is still property contained within the trust, it is up to the trustee and beneficiary to work out how the trust is handled.
The only three times you might want to consider creating an irrevocable trust is when you want to (1) minimize estate taxes, (2) become eligible for government programs, or (3) protect your assets from your creditors. If none of these situations applies, you should not have an irrevocable trust.
The grantor transfers all ownership of assets into the trust and legally removes all of their ownership rights to the assets and the trust. Living and testamentary trusts are two types of irrevocable trusts.
Putting assets into an Irrevocable Living Trust can be understood as giving the assets to someone else (the Trustees) to manage. In addition, you (the grantor) forfeit any rights to the control or management of the assets, including the right to sell, give away, invest, or otherwise manage the property in the Trust.
With an irrevocable trust, the transfer of assets is permanent. So once the trust is created and assets are transferred, they generally can't be taken out again. You can still act as the trustee but you'd be limited to withdrawing money only on an as-needed basis to cover necessary expenses.
When a deceased beneficiary's trust inheritance passes to her estate, it's subject to probate. The property is eventually distributed to her beneficiaries – the ones she's named in her will. If she doesn't leave a will, it passes to her closest kin according to state law.
Even so, for estate tax purposes, the assets in an irrevocable grantor trust may be considered outside of the grantor's estate and therefore not subject to estate taxes at the grantor's death.
The trustee manages the assets once they are put in the trust. Although they are distinct roles, the grantor and trustee are often the same person. One of the greatest advantages of an irrevocable trust is that it can offer great protection from future creditors and lawsuits as well as bad marriages.
This rule generally prohibits the IRS from levying any assets that you placed into an irrevocable trust because you have relinquished control of them. It is critical to your financial health that you consider the tax and legal obligations associated with trusts before committing your assets to a trust.
Revocable, or living, trusts can be modified after they are created. Revocable trusts are easier to set up than irrevocable trusts. Irrevocable trusts cannot be modified after they are created, or at least they are very difficult to modify. Irrevocable trusts offer tax-shelter benefits that revocable trusts do not.
The simple answer is yes, a Trustee can also be a Trust beneficiary.
Often the grantor will choose his spouse, sibling, child, or friend to serve as trustee. Any of these may be an acceptable choice from a legal perspective, but may be a poor choice for other reasons.
As the Trustor of a trust, once your trust has become irrevocable, you cannot transfer assets into and out of your trust as you wish. Instead, you will need the permission of each of the beneficiaries in the trust to transfer an asset out of the trust.
In simple trusts, the trustee is legal owner and simply holds as little more than a nominee for the beneficial owner. The beneficial owner may be in occupation of the property and has its full benefit.
It is certainly possible to sell a property that is owned and held in a trust, but a lot of complications tend to arise when the property is inherited through a trust.
The trust remains revocable while both spouses are alive. The couple may withdraw assets or cancel the trust completely before one spouse dies. When the first spouse dies, the trust becomes irrevocable and splits into two parts: the A trust and the B trust.
The trustee cannot grant legitimate and reasonable requests from one beneficiary in a timely manner and deny or delay granting legitimate and reasonable requests from another beneficiary simply because the trustee does not particularly care for that beneficiary. Invest trust assets in a conservative manner.
The trust creator puts a clause into the trust stating automatic trust termination when the beneficiary reaches a specific age.