Unlike a revocable trust, an irrevocable trust is one that is designed to be permanent. This means that once it has been created, it cannot be changed. While this might seem a bit drastic, in certain situations, there are benefits in creating such a trust.
Lowering Your Estate’s Taxable Rate
If you are a high net-worth individual, an irrevocable trust can give you the ability to lower your estate’s taxable rate while still being able to pass your assets to your heirs and beneficiaries. You can also use this type of trust to donate to charitable organizations. Another important feature of an irrevocable trust is that it can play a role in minimizing your personal income tax. It can create a more direct path to distributing your assets to your heirs and beneficiaries without the hassle of probate upon your death.
Shielding Assets from Liabilities
An irrevocable trust can be used for liability protection for a grantor’s/settlor’s assets. By creating such a trust, your assets can be shielded from judgments or creditors because you no longer own them. The trust owns the assets; therefore, they are kept separate from any assets or property that may still be in your name. If you are in a high-risk industry or at risk of being sued, you may need a vehicle for protecting your assets, an irrevocable trust is one to consider.
But What if You Change Your Mind?
Once you have created your irrevocable trust, you as the grantor/settlor give up full control and ownership of the property you have placed into that trust. The person you appoint as the Trustee will be managing and controlling the assets in your irrevocable trust. For some, this might be a little disconcerting if you have concerns in the future as to whether the trust is being managed properly or if circumstances have changed that need to be addressed, e.g., life events such as divorce or estrangements.
California law allows for changes to an irrevocable trust under special circumstances. But keep in mind, California Probate Code §16060 protects the rights of beneficiaries of irrevocable trusts, also. Once this type of trust has been created, its trustee has a duty to keep its beneficiaries reasonably informed of the trust and how it is administered.
- To legally change an irrevocable trust without court approval, every person listed in the trust, including all heirs, beneficiaries, and grantors/settlors need to unanimously approve amending or terminating the trust.
- If unanimous consent cannot be obtained, the trustee of the irrevocable trust can petition the court to modify or terminate the trust under the changed circumstances doctrine. This is an action that can be taken if continuing your trust would go against the spirit of why it was originally established.
If you think an irrevocable trust could be beneficial to your estate planning strategy, let the experts at Celaya Law help.
