The world of estate planning is rife with different tools and devices intended to serve a variety of needs. This variety often comes in handy as it allows for highly personalized estate plans.
Previously, the standard will was considered the default means of estate organization, but people are now exploring new alternatives, such as trusts.
In particular, the irrevocable trust has become more fashionable as of late. Like every other estate planning tool, the irrevocable trust provides planners with unique benefits, but it also has distinct shortcomings.
If you’re considering an irrevocable trust, here are some pros and cons to consider:
The irrevocable trust is desirable for tax reasons, especially if you’re trying to avoid the dreaded estate tax. Yes. When a person dies, they have to pay Uncle Sam yet again.
Thankfully, there are a few nifty ways to skirt the estate tax and the irrevocable trust is one of them. If the trustor transfers assets into the trust before he dies, those assets are no longer considered part of his estate. Therefore, they are not subject to the estate tax.
Assets within an irrevocable trust are shielded from legal action. Thus, if the trustor is sued by creditors, and the suit is successful, they cannot seize the trust’s assets as restitution.
Notably, this is not a perk provided by a revocable trust.
Probate is the bane of estate planners and administrators. It is time consuming and costly. So many find the irrevocable trust appealing because it is not subject to probate. All assets transferred into the trust are no longer considered part of the trustor’s estate, rendering probate superfluous.
One of the drawbacks of irrevocable trusts is that they live up to their name. That’s right, they cannot be changed or modified. Thus, if you suspect your circumstances may change dramatically in the near future, you may be better suited by an alternative estate planning mechanism.