Estate planning and irrevocable trust are important tools in any financial planning strategy that can save your family time and money in probate court. An irrevocable trust is a financial arrangement much like other types of trusts except that the grantor relinquishes ownership and control of the property, assets, and any funds in the trust. An irrevocable trust cannot be revoked, modified, or terminated by the grantor once created, except with the permission of the beneficiaries. The grantor is not allowed to withdraw any contributions from the irrevocable trust. Once the grantor donates funds or assets into the trust, he/she surrenders any rights to those funds or assets as with the trust itself. A donation into the trust is considered a gift.
Estate planning and irrevocable trust offer many tax advantages. An irrevocable trust permits the grantor to donate assets and money to beneficiaries before he/she passes. The trust is considered a separate asset holding or revenue producing taxable entity and will owe its own taxes on any accumulated income or holdings. An irrevocable trust receives a deduction from any income that is regularly disbursed to the beneficiaries. One such trust is an irrevocable life insurance trust; this type of trust is very helpful after the death of the grantor. An irrevocable life insurance trust can spare the beneficiaries from many of costs associated with probate court. This type of trust, sometimes known as a life insurance trust, can also help the recipients named in the trust save on estate taxes and other fees associated with probate benefits. Filling out an irrevocable trust form to set up this trust can prove to be very helpful in setting up an education fund for children over 14 years of age.
An irrevocable trust is funded through monetary gifts that have been taxed prior to the donation of the funds into the trust. In addition, gifts to a trust are not included in the yearly monetary gift tax exemption amount.
Even though an irrevocable trust life insurance limits the involvement of the grantor, it is still a viable and smart way for grantors to bequeath assets and/or funds to beneficiaries in future dates while avoiding some of the taxes usually associated with the gift or transfer of income to heirs and beneficiaries. Because irrevocable legal trusts are taxed as separate income producing entities, it is a good idea to create a few irrevocable trusts to accumulate income while staying within the lower tax bracket. This is to prevent trust litigation and have trusts asset protection. However, keep in mind that multiple irrevocable trusts with the same grantor and the same beneficiaries can be seen and treated as the same trust by the Internal Revenue Service (IRS). If the occurs, the intended beneficiaries could end up in higher tax bracket if the total taxable income is over $7,650 for a single beneficiary.
Some types of irrevocable trust include:
Estate planning and irrevocable trust are complicated tax and financial planning tools that should be implemented with the help of an experienced estate-planning lawyer. Because tax and estate laws differ widely from jurisdiction to jurisdiction, it is recommended that a local estate planning lawyer be used when implementing any estate planning and irrevocable trust as part of a broader financial planning strategy.
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