At its most basic level, Asset Protection and Estate Planning with an Irrevocable Trust stems from this fact: if properly drafted a person can give assets to an Irrevocable Trust and his future creditors cannot take that asset. The Grantor no longer owns the asset; the Trust owns the asset.
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.
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.
Another significant benefit of an irrevocable trust is that it provides substantial protection from creditors. Once assets are transferred to the trust, they no longer belong to the grantor, rather, they become the legal property of the trustee to hold for the beneficiaries.
The trustee has the option to sell the property in an irrevocable trust privately, or to seek the services of a real estate agent. This choice is usually left to the discretion of the trustee because they're responsible for managing the sale. The trustee can hire a real estate agent if they deem one to be necessary.
When property is “held in trust,” there is a divided ownership of the property, “generally with the trustee holding legal title and the beneficiary holding equitable title.” The trust itself owns nothing because it is not an entity capable of owning property.
An irrevocable trust is one that may not be modified once it has been created, so it cannot be revoked, amended, changed or altered in any way. Money, property and holdings placed into irrevocable trusts cannot be removed at a later date, so it is important the owner is aware that this is a permanent action.
Putting your house in an irrevocable trust removes it from your estate, reveals NOLO. Unlike placing assets in an revocable trust, your house is safe from creditors and from estate tax. ... When you die, your share of the house goes to the trust so your spouse never takes legal ownership.
Distribute trust assets outright
The grantor can opt to have the beneficiaries receive trust property directly without any restrictions. The trustee can write the beneficiary a check, give them cash, and transfer real estate by drawing up a new deed or selling the house and giving them the proceeds.
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.
So, once the assets go into the irrevocable trust, the trustee, as fiduciary for the beneficiaries, has the legal responsibility for, among other things, making sure the taxes are paid appropriately. Thus, the trustee is the responsible party.
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.
Irrevocable trusts are legal entities operated according to a trust agreement which is followed by the trustee. Irrevocable trusts cannot be modified, amended or terminated, except in very limited circumstances. Assets transferred into a irrevocable trust become the property held in trust for the beneficiaries.
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.
But assets in an irrevocable trust generally don't get a step up in basis. Instead, the grantor's taxable gains are passed on to heirs when the assets are sold. Revocable trusts, like assets held outside a trust, do get a step up in basis so that any gains are based on the asset's value when the grantor dies.
The Trustee simply transfers all assets to the beneficiary. Distribution is also fairly easy if the trust document identifies all assets and specific amounts to be paid to each beneficiary. Distributions by percentages are a little more complicated as the Trustee should first establish the estate's fair market value.
Generally, a trustee is the only person allowed to withdraw money from an irrevocable trust. But just as we mentioned earlier, the trustee must follow the rules of the legal document and can only take out income or principal when it's in the best interest of the trust.
The 65-day rule relates to distributions from complex trusts to beneficiaries made after the end of a calendar year. For the first 65 days of the following year, a distribution is considered to have been made in the previous year.
There is no prohibition against you living in a house that is going through the probate process. ... However, when the deceased individual owns the home in their own name exclusively, the estate will go through probate. Unless the home was transferred into a trust, the home would go through probate as part of the estate.
Irrevocable trusts are an important tool in many people's estate plan. They can be used to lock-in your estate tax exemption before it drops, keep appreciation on assets from inflating your taxable estate, protect assets from creditors, and even make you eligible for benefit programs like Medicaid.
A trust can remain open for up to 21 years after the death of anyone living at the time the trust is created, but most trusts end when the trustor dies and the assets are distributed immediately.
In most cases, what makes a trust invalid is a problem with its creation. For instance, a trust might be legally considered invalid if it: Was created through intimidation or force. Was created by a person of unsound mind.
Typically, because the irrevocable trust is a separate legal entity, it isn't included in the estate of the person who created it. ... If the trust is included in the estate, then estate taxes may be due, and the net amount of your inheritance could shrink.
How do you dissolve an irrevocable trust after death? While, in general, irrevocable trusts cannot be changed, they can be modified or dissolved after the grantor dies in certain situations as authorized by the California Probate Code.
A Trustee owns the assets in the sense that the Trustee has the sole right, and responsibility, to manage the Trust assets. That includes selling and buying assets. Since the Trustee is the legal owner, the Trustee can exercise his or her power unilaterally with no input required from the Trust beneficiaries.