While many families may prefer the simplicity of outright gifting, setting up an irrevocable trust may be a better way to preserve assets for the future and provide a longer legacy. An irrevocable trust cannot be changed after it is created.
The format of an irrevocable trust can vary greatly, but a common way to draft the trust is such that the grantor receives income from the assets in the trust during his or her lifetime and then the remaining assets are paid to the designated beneficiaries upon the grantor’s death. This allows the grantor to continue to benefit from the income while protecting the assets placed in the trust.
An irrevocable trust constructed in this manner offers the following benefits:
Income: The grantor retains the right to the income generated by the trust. Distributions can be made in fixed monthly, quarterly or annual payments or discretionary payments determined by the trustee.
Control:As the grantor you create the irrevocable trust according to your terms. You choose the trustee and beneficiaries.
Asset Protection:Irrevocable trusts are powerful asset protection tools. Keeping the assets in the name of the trust shelters those assets from your beneficiaries’ creditors and spouses in the case of divorce.
Taxes: Currently, it also allows a step up in basis at your death which minimizes the capital gains owed on any appreciation of the assets. Lawmakers are considering eliminating the step up in basis due to it being a perceived tax loophole for the wealthy.
While it may be tempting to simply gift assets to family members, think through the benefits of using an irrevocable trust to accomplish your asset transition goals. If you have intended beneficiaries who are prone to overspending, have addiction issues, struggle with creditors or may end up in divorce court, using an irrevocable trust to protect your assets is even more important. In many scenarios, using an irrevocable trust to transition assets is superior to outright gifting. To discuss the specifics of your situation, contact the experienced estate planning attorneys at Stouffer Legal in the Greater Baltimore area. You can schedule an appointment by calling us at (443) 470-3599 or emailing us at email@example.com