What is an Irrevocable Trust?
An Irrevocable Trust is a trust created by the Grantor (also known as “Trustee”, who are the creator or contributor of a trust) that, by its nature, is impossible to “revoke” the trust and bring the assets back into his name. This permanent status differs greatly from a Revocable Trust – which is designed specifically for being withdrawn at any time by the Grantor. Once the Grantor gives an asset to the Irrevocable Trust, the asset belongs to the trust and cannot be transferred back to the Grantor’s personal ownership. 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.
How To Set up an Irrevocable Trust in Vancouver?
Each Irrevocable Trust must have a Grantor, Trustee, and a Beneficiary. The trust is only a piece of paper, so the trust terms must appoint an individual or entity who will implement the trust’s terms; this person is called the Trustee. Once signed, the Grantor or other people may give the trust assets (also known as “funding the trust”) which the Trustee manages for the benefit of the Beneficiaries.
What Are the Advantages of an Irrevocable Trust?
An Irrevocable Trust, like a Revocable Trust, is a primary tool in some Asset Protection and Estate Plans. The trusts can own almost any asset while providing shelter while providing the benefit of keeping the asset unreachable from the Grantor’s and Beneficiary’s divorce, creditors, and legal problems; The trust can help keep assets in the family. This flexible tool can allow the Grantors to provide benefits for generations. These valuable benefits arise because once the Grantor transfers ownership of an asset to the trust, he or she has surrendered all incidents of ownership over that asset. It is the trust’s asset now, not the Grantor’s. The transfer can also remove the asset from the Grantor’s taxable estate, avoiding death taxes and shifting the income tax burden away from the Grantor.
What are the Types of Irrevocable Trusts?
Like most things in life, there is no “one size fits all” Irrevocable Trust. Irrevocable Trusts are flexible tools that can be modified to fit many situations, and address many needs. I would be happy to talk to you about your particular circumstances and brainstorm with you about what trust best fits your needs. Below is a list of some of the Irrevocable Trusts we regularly use, with a link to more detailed information on each.
Irrevocable Life Insurance Trust (ILIT): An ILIT is an Irrevocable Trust used to remove life insurance from the Grantor’s probate and taxable estate.
Disclaimer Trust: Usually used in a Will, a Disclaimer Trust refers to a protective trust for a surviving spouse funded with assets that the surviving spouse could have taken outright, but instead “disclaimed.” The Will’s terms then dictate that these disclaimed assets pour into the “Disclaimer Trust.”
Qualified Domestic Trust (QDOT): Used when one spouse is not a US citizen. The QDOT allows the US Citizen spouse to leave assets for the non-citizen spouse’s care without triggering taxes.
Education Trusts: Education Trust refers to an Irrevocable Trust created to distribute assets only for the beneficiaries’ education. Typically designed for the Grantor’s descendants.
Bypass Trust: A Bypass Trust is a technique that shelters the first spouse’s estate tax exemption. Typically the surviving spouse has access to the funds but at the surviving spouse’s death the remaining assets “bypass” that spouse’s estate and pass estate tax-free for descendants.
Credit Shelter Trust: A Credit Shelter Trust is a technique where the deceased spouse’s estate and generation skipping tax exemption is “sheltered” and preserved. Typically, the surviving spouse has access to the trust funds, but at the surviving spouse’s death, the remaining assets pass to descendants free of estate and generation-skipping taxes.
Marital Trusts: A Marital Trust is typically used along with a Bypass or Credit Shelter Trust to hold the portion of the deceased spouse’s assets that exceed the death tax credit. The assets are held for the surviving spouse sheltered from creditors or future spouses but are part of that spouse’s taxable estate. If drafted properly the trust qualifies as part of the “Marital” exemption, hence the name.
AB Trust: An AB Trust or AB Trust is a combination of a Credit Shelter Trust (the “A” Trust) and a Marital Trust (the “B” Trust). These trusts are used by married couples to shelter all of the deceased spouse’s assets in protective trusts but keeping the tax-exempt assets separate from the assets which are not tax exempt at the first spouse’s death.
Pet Trust: a pet trust, also known as an animal trust allows you to plan for the care of your pet if you pass away. The trust also covers any pets that may be in gestation at the time of your death. By creating a trust for your pet, you are ensuring they maintain as close to a normal life as possible.
Advising and Representing Trustees
Trustees of Irrevocable Trusts owe beneficiaries a fiduciary duty. If the beneficiaries believe that any action taken by the Trustee has harmed them, they are free to petition the court to review any and all actions seeking to surcharge the Trustee. If surcharged, the Trustee must pay the damages from the Trustee’s funds.
Why a Trustee Needs a Lawyer
Almost every Irrevocable Trust allows the Trustee to hire a lawyer to advise and represent the Trustee. Professional Trustees retain in-house attorneys for this purpose and then supplement these attorneys with outside Estate Litigation Lawyers. Professional Trustees seek legal help because professional Trustees know this is a wise decision. Sound, legal advice from experienced Trust Lawyers helps avoid conflict and minimize the chances of litigation. Further, it helps reduce the chance that the Trustee will make a mistake causing personal liability.
Typical Questions About Irrevocable Trusts:
Do I need an Irrevocable Trust?
While an Irrevocable Trust is never a legal requirement, they have many advantages. A careful analysis of your assets, goals and your heirs’ needs is the only way to judge if a trust is right for you.
Can I use a Life Insurance Policy for a Trust?
Irrevocable Life Insurance Trusts, or ILITs, are specifically designed to hold life insurance. Life insurance is a flexible, estate planning tool, and can be used in conjunction with many Irrevocable Trusts. For example, an excellent plan for avoiding conflict in a second marriage or blended family is purchasing life insurance to fund trusts so your spouse and children from prior relationships can part on good terms. Further, life insurance in Irrevocable Trusts is often critical components in business succession planning.
Is it expensive to have a bank or trust company be a Trustee of a Trust?
A “Corporate Trustee” is a bank or trust company serving as trustee. Corporate Trustees have fee schedules available on request. Typically, the Corporate Trustee charges a percentage of the trust’s assets’ fair market value; such as 1.5%. When you ask if the cost is expensive, you have to balance the need for a Corporate Trustee with the services provided. If a no family member is qualified, a Corporate Trustee is an excellent alternative. Further, an interested person can always challenge a fee and have the court review fees. Always balance a Corporate Trustee’s power by appointing a responsible Protector team.
What is a Protector?
In a Trust, a Protector is a person appointed to oversee the trustee. A Trust Protector may be granted many powers, but typically has the power to remove and replace the trustee without the use of courts or lawyers.
What are the advantages of having a Trust Protector?
An Irrevocable Trust is, Irrevocable. If you appoint a person or institution as trustee and later regret that decision, your options to remove and replace that trustee are limited and expensive. If you include a Protector in the trust:
- Trustees will be more likely return your calls faster, as they can be easily removed.
- If the Trustee becomes incapacitated, inattentive, involved in a dispute with a beneficiary or otherwise problematic, the Trustee may be removed quickly and inexpensively.
- The Protector can act as a form of communication between a Trustee and beneficiaries and avoid needless litigation.
- The Protector can obtain data from a Trustee that might otherwise not be released.
- The Protector can have other powers, which allow them to address changes in the law, circumstances and the tax code.
How are banks paid to be Trustees?
Banks and Trusts companies typically charge a percentage of the trust’s value each year. Corporate Trustees provide these fee schedules on request and sometimes publish them on websites. Non-corporate Trustees generally charge an hourly rate.
What happens if the person I leave something to in an Irrevocable Trust dies before me?
A well drafted Irrevocable Trust clearly states where assets pass when a beneficiary dies. A good Estate Planning Lawyer asks you what result you wish, and drafts the trust accordingly.
What is an Irrevocable Living Trust?
There is no such thing as an Irrevocable Living Trust. This is a combination of Revocable Living Trust and Irrevocable Trust. A “Living Trust” is a trust that can be modified and revoked.
What is a Revocable vs. Irrevocable Trust?
Simply put, the Grantor cannot revoke an Irrevocable Trust while he can revoke a Revocable Trust. These two trust groups have different Estate Planning and Asset Protection purposes.
Irrevocable Trust Medicaid Planning
An Irrevocable Trust can be useful for Medicaid Planning. In short, the grantor can form a trust, transfer assets into the trust and then wait out the Medicaid look-back period. Once past, the grantor can apply for Medicaid while the property remains safely in the Irrevocable Trust, sheltered from children’s divorce and creditors. Using Irrevocable Trusts in Medicaid planning is complex. Only attempt such planning after a thorough Estate Planning Lawyer’s analysis.
What does Irrevocable Mean?
Irrevocable means that the Trust cannot be “revoked,” meaning it cannot be closed down by the Grantor.
What is a Trust Beneficiary?
A Trust Beneficiary is a person or entity entitled to receive benefits from a trust.
What is a Trust Contingent Beneficiary?
A Contingent Beneficiary is a person or entity entitled to receive benefits from a trust, dependent on a contingency.
Experienced, With Reasonable Prices, We Make Estate Planning and Irrevocable Trusts in Vancouver Easier.
If you have any questions about Irrevocable Trusts or any other Estate Planning topics, please contact us to schedule a free consultation. At Vancouver Wills and Trusts we focus on estate law. With years of experience we will explain complex estate planning techniques clearly and concisely. We make it easy for you to understand estate planning so you can make the best decisions for yourself and your family.