IRS states the responsible party is the one who controls what the converted irrevocable trust does which would be the Trustee, and the death of the Grantor can't control anything.
For trusts, the responsible party is a grantor, owner, or trustor. For decedent estates, the responsible party is the executor, administrator, personal representative, or other fiduciary.
Under an irrevocable trust, legal ownership of the trust is held by a trustee. At the same time, the grantor gives up certain rights to the trust.
Generally speaking, once a trust becomes irrevocable, the trustee is entirely in control of the trust assets and the donor has no further rights to the assets and may not be a beneficiary or serve as a trustee.
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.
In an irrevocable trust, the trustee holds legal title to the property, bearing the fiduciary responsibility to manage it in the best interest of the beneficiaries.
The downside of irrevocable trust is that you can't change it. 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, which can be a huge danger if you aren't confident about the reason you're setting up the trust to begin with.
Rul. 2023-2 has made a major change in the way assets are treated within Irrevocable Trusts, namely concerning the provision for step-up in basis. The rule states that unless the asset in question is included in the taxable estate of the Grantor upon their death, then that asset will not receive the step-up in basis.
For change in ownership purposes, the present beneficiary of an irrevocable trust is considered to be the owner of the present beneficial interest in property held by the trust.
A trustee typically has the most control in running their trust. They are granted authority by their grantor to oversee and distribute assets according to terms set out in their trust document, while beneficiaries merely reap its benefits without overseeing its operations themselves.
For entities with shares or interests traded on a public exchange, or which are registered with the Securities and Exchange Commission, “responsible party” is (a) the principal officer, if the business is a corporation, (b) a general partner, if a partnership, (c) the owner of an entity that is disregarded as separate ...
Under the duty of loyalty, a Trustee must administer a Trust “solely in the interest of the beneficiaries.” (See Probate Code section 16002.)
When the grantor of an irrevocable trust dies, the trustee or the person named successor trustee assumes control of the trust. The new trustee distributes the assets placed in the trust according to the bylaws of the trust.
Changes to an Irrevocable Trust
It is important to remember you do not have the authority to take assets back out. You must be sure of your decision moving forward with this asset protection strategy.
The IRS and Irrevocable Trusts
This means that generally, the IRS cannot touch your assets in an irrevocable trust. It's always a good idea to consult with an estate planning attorney to ensure you're making the right decision when setting up your trust, though.
Consider: Grantor—If you are the grantor of an irrevocable grantor trust, then you will need to pay the taxes due on trust income from your own assets—rather than from assets held in the trust—and to plan accordingly for this expense.
Decanting to Modify Irrevocable Trusts
This statutory power allows a single party – the trustee – to modify a trust without court involvement or beneficiary consent. A trustee may exercise this “special power to appoint” some or all trust assets if three threshold requirements are met.
Also, an irrevocable trust's terms cannot be changed, and the trust cannot be canceled without the approval of the grantor and the beneficiaries, or a court order. Because the assets within the trust are no longer the property of the trustor, a creditor cannot come after them to satisfy debts of the trustor.
Irrevocable trusts cannot be modified, amended or terminated after they are created. This type of trust can remain open indefinitely after the grantor dies and can be taken over by an existing co-trustee or a successor trustee.
Who owns the property in an irrevocable trust? The trustee is the legal owner of the property placed within it. The trustee exercises authority over that property but has a fiduciary duty to act for the good of the beneficiaries.
Yes, a trustee can withdraw money from an irrevocable trust, but only to pay for third-party expenses and not for personal reasons. This is because it is the trustee's responsibility to manage the trust according to the to the wishes of grantor.
And so the trustee of a trust, whether it's revocable or irrevocable, can use trust funds to pay for nursing home care for a senior. Now, that doesn't mean that the nursing home itself can access the funds that are held in an irrevocable trust. It's always the responsibility of the trustee to manage those assets.