Irrevocable trusts are just that – irrevocable. Once the terms of the trust have been set, it’s very difficult and sometimes impossible to alter them without court intervention.
While irrevocable trusts offer many benefits, the inability to change the terms and beneficiaries of the trust can be unappealing.
Trusts consist of at least one grantor, one trustee, and one beneficiary. After the grantor creates the trust, it must be ‘funded.’ The trust is just an empty vessel unless assets are transferred to it.
Generally, trusts can be either revocable or irrevocable. There are advantages and disadvantages to each kind of trust. In this article, we will take a look at three disadvantages of irrevocable trusts.
When assets are transferred to a trust, the grantor no longer owns the asset – the trust does. However, the grantor of a revocable trust can directly control the assets.
Assets transferred to irrevocable trusts are no longer controlled by the grantor. More importantly, the trust assets are no longer part of the grantor’s taxable estate. However, the benefits of tax reduction may not be enough to balance the loss of control, and with a federal estate tax exemption in excess of $11 million per person, many people will not benefit at all, from an estate tax perspective, from the use of an irrevocable trust.
An irrevocable trust may be more complicated to establish than a revocable trust, making complexity one of the disadvantages of irrevocable trusts. Income tax, gift tax, asset protection, and estate tax issues must be thoroughly considered. Due to the complexity, the upfront costs of establishing an irrevocable trust will likely be higher.
Adding to the complexity is the number of irrevocable trusts available. Each has its own purpose:
The characteristic all irrevocable trusts share is the difficulty in or inability to change the terms of the trust.
When considering whether to use an irrevocable trust, keep the following in mind:
Like any other estate planning tool, it’s important to know how the advantages and disadvantages relate to your circumstances.
Maura and her husband decided to use several trusts – including one irrevocable trust – to meet their estate planning needs. Fortunately, they consulted with an attorney who knew the consequences of using the wrong trust.
John Mangan is an experienced Florida estate planning attorney who has been board certified in Wills, Trusts & Estates by the Florida Bar. At Law Offices of John Mangan, P.A., we help clients develop an estate plan that’s appropriate for their circumstances. Call us at 772-324-9050 to set up an appointment or use our Contact Form. With our office located in Palm City, we also assist clients in surrounding communities like Stuart, Hobe Sound, Jupiter, and Port St. Lucie.