Trusts are an essential part of estate planning. Revocable living trusts are more commonly used, but irrevocable trusts offer unique benefits. A revocable trust can be revoked or amended by the trust’s creator, with limited exceptions. While irrevocable trusts must comply with more stringent guidelines than revocable trusts, they offer unique protections for estate planners.
Whether you’d like to protect your assets from lawsuits or creditors, create a special needs trust, or engage in incapacity planning, an irrevocable trust may be right for you. The Virginia estate planning attorneys at Surovell Isaacs & Levy PLC have an in-depth understanding of Virginia trust laws and can work with you to create an irrevocable trust that meets your unique needs and goals. Contact Surovell Isaacs & Levy PLC to schedule an initial consultation and speak to a skilled Virginia estate planning attorney.
What Is an Irrevocable Trust?
As noted, an irrevocable trust is a type of trust that cannot be modified or revoked except in limited circumstances. The person creating the trust is called the grantor. When creating the trust agreement, the grantor will appoint one or more trustees who will manage the assets in the trust for the benefit of the beneficiaries.
The beneficiaries are the individuals or charities who will ultimately receive the assets in the trust. The main purpose of an irrevocable trust is to protect the assets in the trust for the beneficiary. After the trust agreement has been signed, the grantor will move assets into the trust. At that point, the trust will own the assets. When the assets have been transferred, the grantor legally removes his or her ownership rights to the trust. The grantor can transfer many different types of assets into an irrevocable trust, including, but not limited to, business investment assets, cash, life insurance policies, and real estate.
The Difference Between Irrevocable and Revocable Trusts
Revocable and irrevocable trusts serve the same purpose of helping your loved ones avoid the probate process after you pass away. After you pass away, the trustee can begin distributing assets owned by the trust to the beneficiaries you’ve selected quickly and privately instead of waiting for the probate court to process a last will and testament.
The main difference between an irrevocable and revocable trust is that an irrevocable trust cannot be modified, amended, or terminated without the permission of the beneficiary or by an order from a court. On the other hand, a revocable trust can be modified and revoked by the grantor who created the trust. Once the grantor has created and funded the irrevocable trust, they will not have the authority to manage the assets in the trust. Instead, the trustee will take over managing the trust and its assets. Many estate planners choose to create a revocable trust because they can maintain control over the assets and move assets in and out of the trust when necessary. With a revocable trust, the grantor has full access to the assets and can use the assets for his or her personal needs, providing the grantor with greater flexibility.
Types of Irrevocable Trusts for Virginia Estate Planners
There are several types of irrevocable trust, each serving a particular need and goal. The needs of estate planners vary among individuals and families. For example, professionals working in industries where lawsuits are common, like doctors and engineers, may want to establish an asset protection trust to protect their properties from potential lawsuits.
Families with children with special needs may want to create a special needs trust to allow their loved one to qualify for critical public benefits while still receiving an income from the trust. Creating an irrevocable life insurance trust ensures that your estate won’t inherit the proceeds from the policy. This can potentially decrease your estate tax burden. Some of the most commonly used types of irrevocable trusts include the following:
- Testamentary trust
- Medicaid planning trust
- Asset protection trust
- Charitable trust
- Special needs trust
- Irrevocable life insurance trust (ILIT)
The Benefits of an Irrevocable Trust
Although revocable trust provides estate planners with greater flexibility, an irrevocable trust provides unique benefits. The transfer of assets into an irrevocable trust amounts to a permanent legal change of ownership. As a result, the property held in the trust will not be subject to probate after the creator’s death. The beneficiaries can avoid the time and expense involved with the probate process, and the grantor won’t be personally liable for estate taxes on the funds transferred into the trust.
The irrevocable trust provides extensive protection from creditors. Whether the creditors are pursuing compensation from the grantor or one or more named beneficiaries, they will not have access to the assets held within the irrevocable trust. If you are the parent of an adult child who has substantial debt, is going through or may go through a divorce, or has a gambling problem or another type of addiction, an irrevocable trust may be your best option. Even if your child has creditors in the future, they will not be able to access the money and the irrevocable trust. Other benefits of creating an irrevocable trust include the following:
- Removing taxable assets from the estate
- Preventing beneficiaries from misusing assets by setting conditions for distribution
- Gifting assets to the estate while retaining income from the assets
- Removing appreciable assets from the estate while giving beneficiaries a step-up basis in valuing the assets for tax purposes
- Gifting a principal residence to children under more favorable tax guidelines
- Depleting property to ensure eligibility for public benefits, such as Medicaid for long-term nursing home care or for a child with special needs
Contact an Irrevocable Trust Attorney in Fairfax Virginia
An irrevocable trust is among the best ways to protect your assets and prepare for the future. There are several types of irrevocable trusts, including life insurance and special needs trusts. Our knowledgeable attorneys can discuss the different types of irrevocable trusts and help you determine an effective estate planning strategy. If you have questions about whether an irrevocable trust is right for you, contact the experienced attorneys at Surovell Isaacs & Levy PLC.