Irrevocable trusts are unalterable by you or your spouse, whether during your life or after your death. If you create an irrevocable trust from the start, you lose decision-making rights. You cannot make any changes, nor can you dissolve the trust.
The death of your spouse will alter the way any assets in the trusts are distributed when you die, if your spouse was listed as the beneficiary. You will also need to choose someone to name as a successor trustee if that role was left to your spouse in your original trust.
When the grantor of an irrevocable trusts dies, the person named successor trustee in the Declaration of Trust assumes control of the trust. The new trustee distributes the assets placed in the trust to the proper beneficiaries.
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.
There are some obvious downsides to an Irrevocable Trust. The main one is the fact that you can't change an Irrevocable Trust once it's finalized.
A trust can remain open for up to 21 years after the death of anyone living at the time of the trust's creation, but that is not common procedure. Most trusts are settled when the grantor dies, and the successor trustee distributes the assets as quickly as possible.
One of the biggest mistakes parents make when setting up a trust fund is choosing the wrong trustee to oversee and manage the trust. This crucial decision can open the door to potential theft, mismanagement of assets, and family conflict that derails your child's financial future.
The grantor can set up the trust so the money is distributed directly to the beneficiaries free and clear of limitations. The trustee can transfer real estate to the beneficiary by having a new deed written up or selling the property and giving them the money, writing them a check or giving them cash.
In summary, when a grantor dies, their revocable trust becomes irrevocable, and the successor trustee steps in to manage the assets, including real estate. The trustee ensures the trust's terms are carried out, settling debts, paying taxes, and distributing assets to beneficiaries according to the trust's instructions.
Under typical circumstances, the surviving spouse would become the sole trustee after the death of one spouse.
Irrevocable trust comes in handy as it helps protect the assets, acquire benefits from the state and reduce taxes on the estate. Under the California irrevocable trust law, once the transfer starts, all the transaction details become public information and are registered with the county clerk.
Instead, in most cases, an irrevocable trust can only be dissolved by court order. The details of dissolving an irrevocable trust differ widely between states and jurisdictions. However, typically you will need to get approval from the trust's beneficiaries and potentially its trustees as well.
Trusts offer amazing benefits, but they also come with potential downsides like loss of control, limited access to assets, costs, and recordkeeping difficulties.
Drawbacks of Putting a House Into a Trust
Loss of Control: Transferring a house into a trust means you lose direct control of it, with the trustees making decisions on your behalf. However, many types of trusts still allow the settlor to retain some control, especially with Living Trusts.
There are a variety of assets that you cannot or should not place in a living trust. These include: Retirement accounts. Accounts such as a 401(k), IRA, 403(b) and certain qualified annuities should not be transferred into your living trust.
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.
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.
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.
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.
Generally, no, a grantor cannot withdraw money from an irrevocable trust. Remember that “irrevocable” means unchangeable – neither the grantor or trustee can withdraw. The grantor is essentially given those assets to away to the irrevocable trust.
It is not unusual for the successor trustee of a trust to also be a beneficiary of the same trust. This is because settlors often name trusted family members or friends to both manage their trust and inherit from it.