Many of my clients ask me about the benefits of using a trust as part of their inheritance plan, but they don’t realize that there are many different types of trusts and each can serve an important purpose as part of your inheritance plan, depending on what you have. ultimate goals and concerns.
For example, a special needs trust allows your beneficiary to receive financial support or financial assistance from the trustee without affecting or negating the financial assistance they receive from the government because of a disability or impairment. Of the many categories of beliefs, two are the most revocable and irrevocable.
Any trust, regardless of its purpose, will be labeled as revocable or irrevocable. An irrevocable trust serves the dual purpose of asset protection and property tax reduction. Assets in an irrevocable trust are protected because the giver no longer owns them in the eyes of the law.
When an irrevocable trust is created, a new entity is formed with its own federal tax id number. It is not an extension of its creator. Instead, it is the unit itself that can receive, manage and distribute assets through the named trustee and only in the words of the initial guardian’s language. Once an irrevocable trust is created and funded, it can no longer be changed or revoked. The only parties who have access to the assets of the trust are the trustee and the beneficiaries.
The grantor is not allowed to be a trustee or beneficiary. However, the trustee may be the same party as the beneficiary and, in fact, this is often the most ideal situation. Once assets are in an irrevocable trust, they are now protected from creditors, plaintiffs, and the grantor’s spouse.
Assets are also protected from creditors, plaintiffs and spouses of any trustees or beneficiaries, as long as the assets remain in the trust. Because an irrevocable trust has no creditors of its own, the assets will remain out of reach of financial vultures seeking to acquire them.
In addition, by removing these assets from your personal name and assigning them to a new irrevocable trust, you have reduced your real estate tax rate by the same amount. When you die, the federal government will add up the value of all the assets you own in your personal name and assess your estate with taxes based on that value.
This real estate tax will account for real estate, bank accounts, brokerage accounts, collectibles, cars, jewelry, paintings, and even life insurance policies. By transferring your assets from your personal name to a new, irrevocable trust name, you will remove those assets from your inheritance even if you retain access to and enjoyment of them for life.