What is an irrevocable trust?
An irrevocable trust is simply a trust with terms and provisions that cannot be changed by the grantor (the person creating the trust). This is distinguished from a revocable trust (AKA a living trust), which is commonly used in estate planning and allows the grantor to change the terms of the trust and/or take property back at any time.
Why would I want to use an irrevocable trust?
Using an irrevocable trust allows you to achieve a number of significant benefits, including minimizing estate tax, protecting assets from creditors, and providing for family members who are minors, financially irresponsible, or who have special needs. They are sometimes also used for Medicaid and VA Aid and Attendance benefits planning.
How do I create an irrevocable trust?
To create a trust, the grantor enters into a written trust agreement. He or she names a trustee to hold the property according to the terms of this trust agreement. The trust agreement identifies the beneficiaries and tells the trustee when distributions of trust property (including the original assets placed in trust, as well as the income on such assets) should be made to the beneficiaries. A well drafted trust agreement should plan for certain contingencies, such as what to do if the initial beneficiaries are no longer living.
What are the trustee’s duties?
The trustee has two primary duties: (1) to prudently invest and protect the assets of the trust, and (2) to make distributions to the trust beneficiaries according to the terms of the trust agreement. The trustee is required to act at all times in the best interest of the trust beneficiaries. This duty of loyalty is known as a fiduciary duty, and it places a very high (and legally enforceable) standard of care and expectations upon the trustee.
Who should I name as trustee?
Any individual, other than the grantor, may serve as trustee of a trust, including the grantor’s spouse, children, family members, or friends. Of course, given the fiduciary duties required of a trustee, you’ll want to choose someone who is honest, diligent, and trustworthy (no pun intended!). If you would rather have an independent party act as trustee, there are a number of very well qualified professional trust companies in the community. If desirable, more than one individual may be named to serve as co-trustee.
Who can be a beneficiary of a trust?
Anyone other than the grantor may be named as a beneficiary of the Trust. Different family circumstances may dictate the need to structure the trust for different beneficiaries.
Can I amend the trust agreement?
As the name implies, once the trust agreement is signed, it cannot be amended or revoked. However, the trust agreement should be drafted in a flexible manner to allow the trustee to address unforeseen changes in circumstances.