What is an irrevocable trust and do I need one? People ask this question. We’ll start with this. Yes, you may need an irrevocable trust. It really depends.
“When you create an irrevocable trust you are creating a document you cannot change easily, and the property you transfer to the trust is no longer in your control.” Daniel A. Timins, Esq., CFP®
The main purpose of an irrevocable trust is for the parents to protect their assets. An irrevocable trust allows someone to manage your assets while you are living and when you are unable to as well as after your passing.
“While a last will and testament requires a probate court process to distribute your assets to heirs, most trusts avoid probate.” Smart Assets
This can help minimize estate taxes and allow you to qualify for some government programs should you become seriously ill.
With any of these matters, it’s important to talk to a licensed financial planner. Each family has unique needs and situations that determine the best way to move forward.
An irrevocable trust means that you have permanently transferred your rights to manage your assets. This is now up to the trustee who cannot be the beneficiary. This can be an issue if a conflict with the trustee arises later. There is also a cost associated with the trusts. An irrevocable trust has an EIN number and is required to file tax returns.
“In fact, the trust is governed by its trust document and even has its own tax identification number. The trustee is responsible for paying taxes owed by the irrevocable trust (with trust funds).” Policy Genius
Though it is more difficult to change the terms of the trust than a revocable trust, it is doable. Also while alive and well, the trustor can manage their own trust. The trustee steps in when the trustor is incapacitated or has passed away. This may vary by your state’s trust and probate laws, as well.
Most people might need a revocable trust, but maybe not an irrevocable one. This is where your friendly neighborhood estate and financial planner comes in handy. They will be able to give you actionable advice based upon your assets, health, and goals.