What Are The Downsides Of An Irrevocable Trust?
The downsides of an irrevocable trust vary from case to case. If, for example, you have personal wealth in your name in excess of $11 million or more than $22 million for a married couple, and if you are attempting to reduce your estate tax burden, you must be above all benefit and all control from your irrevocable trust to achieve that end. If, however, you are desiring only asset protection for the benefit of your loved ones, you do not have to give up complete control and benefit but you must give up some control. You must give up such control as you wish to have protected from creditors and predators. Therefore, assets that you transfer into the irrevocable trust are no longer available for you to liquidate and spend at the casino. Such would be a violation of the trust and would end the asset protection that you had gained by creating the trust and funding assets into it.
To say this a different way, if you don’t honor the terms of your irrevocable trust, the court will not honor the terms of your irrevocable trust. Therefore, one of the downsides of an irrevocable trust is that you must pay attention to the restrictions contained in the trust document and you must follow those.
Is There Any Possible Way That An Irrevocable Trust Can Be Changed?
If you have appointed a trust protector for your trust and if your trust protector is a knowledgeable and a reliable individual. He or she will be able to make certain changes to your irrevocable trust if the law or facts change making your trust not fit the need for which it was created. There are other ways that an irrevocable trust may be effectively changed but sometimes these methods require your further reducing your control over the assets at least temporarily. Each set of facts and each trust has to be considered on its own and you should not attempt to amend your irrevocable trust without clear guidance from an estate planning attorney who knows a great deal about the use and care of your irrevocable trust.
How Do Revocable And Irrevocable Trusts Affect Estate Taxes Differently?
Revocable trusts are always considered to be part of your taxable estate. For individuals who have more than $11 million and for married couples with more than $22 million (approximate amount in effect at the date of this writing). The need for an irrevocable trust will probably be to avoid excessive inheritance taxes, also known as death taxes. In such instances, the attorney is likely to have chosen an irrevocable trust over which the trust creator is unable to exercise any control or to gain any benefit. Such a trust has the potential of reducing estate taxes. A revocable trust and an irrevocable grantor trust do not have any effect on the amount of estate taxes that will be owed.
Do I Have To File A Tax Return For Either Type Of Trust?
Generally speaking, and throughout your lifetime, there will be no necessity for the tax return to be created and filed for your revocable trust. If you create an irrevocable trust, there is a chance that with your irrevocable trust, you would have to file an income tax return. If your irrevocable trust was created to avoid any inheritance taxes because you have more than $11 million under the current state of the law, that trust is likely to have to file income taxes. On the other hand, if you have an irrevocable grantor trust, it is much more likely that the trust will not have to file a separate income tax return.
Therefore, when you are creating your estate plan, be certain to ask your estate planning attorney whether your particular trust will require its own tax returns. If you received an affirmative answer to your question, and if you have less than $11 million in assets, you might consider the wisdom of seeking a second opinion concerning the nature of your estate plan.
Can I Change My Revocable Trust Into An Irrevocable Trust?
Yes, it is possible to change a revocable trust to an irrevocable trust but such should be done very carefully and only upon the advice of learned counsel that spends a great deal of time studying, creating, and managing the irrevocable trust. Generally speaking, the assets inside an irrevocable trust or assets over which the trust creator wanted to maintain complete and utter flexibility as long as possible. When that revocable trust becomes an irrevocable trust, that control must necessarily be released. That is often an undesirable side effect if the assets were appropriately chosen for an irrevocable trust at the beginning.
For more information on Irrevocable Trusts In Oklahoma, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling (405) 754-4166 today.
Call For Our Free Probate Book Or To Reserve
Your Seat At Our Free Estate Planning Workshop