An irrevocable trust is a legal vehicle that you can use to protect your assets from creditors and predators. It is also a great way to reduce estate taxes. However, there are some drawbacks to using an irrevocable trust.
What are the pros and cons of an irrevocable trust, and is this type of trust right for your family’s needs?
The pros and cons of an irrevocable trust
An irrevocable trust is a type of trust that cannot be modified or revoked by the grantor. Once the terms of the trust have been established, the grantor cannot make any changes without the beneficiaries’ approval.
The main benefit of an irrevocable trust is that it can help to protect assets from creditors. Since the grantor does not have any control over the trust, creditors cannot go after the assets in the trust.
Another benefit of an irrevocable trust is that it can help to reduce taxes on an estate. By transferring assets into an irrevocable trust, the grantor can avoid paying taxes on those assets. This can be a great way to ensure that more of an estate goes to beneficiaries instead of government taxes.
Furthermore, you can use irrevocable trusts to manage assets for minor children or disabled adults. By placing assets in an irrevocable trust, parents can ensure that those assets are used for the benefit of their children.
However, there are some potential drawbacks to using an irrevocable trust, such as:
- You have to give up control over the assets in the trust and the ability to change the terms of the trust if circumstances change.
- Setting up an irrevocable trust can be complex and expensive.
- Once you place assets in an irrevocable trust, they may be challenging to access or use, as the trustees effectively control them.
Since an irrevocable trust is legally complex, you will want to discuss your options as part of your estate planning.