Attorney Boca Raton | Irrevocable Trust Planning

PLANNING USING THE IRREVOCABLE TRUST

Estate Planning and Trusts Lawyers

An Irrevocable Trust is created similar to a Revocable Trust, however, the major difference is that the Irrevocable Trust cannot be changed during your lifetime, or after death, absent a few statutory allowances. An Irrevocable Trust has three components, a Settlor or Grantor, Trust Property (we call this funding), and Beneficiaries. An Irrevocable Trust can also have a Trust Protector, but that is unusual for most cases. The Irrevocable Trust cannot be changed or modified unless it is done through a provision allowing such change in the Trust, Decanting, Non-Judicial Modification, or Judicial Modification.

The Irrevocable Trust can be governed by any laws, but the Trust Laws in Florida are particularly favorable. If your current Trust is governed by non-favorable State Laws, you may be able to move the “Situs” of the Trust to a different state, such as Florida.

There are a few special Irrevocable Trusts which are used along with Basic Estate Planning (which is the Revocable Living Trust, Last Will and Testament, Durable Power of Attorney, Health Care Surrogate, and Living Will), which allow assets to be removed from your Estate for tax purposes. This is especially useful for individuals who have large businesses, or large Estates, or those individuals who stand to receive large insurance proceeds upon death.

Irrevocable Life Insurance Trust

The Irrevocable Life Insurance Trust is a great tool to use when you have large insurance policies in your name. As you may or may not know, in 2015, the Federal Tax Exemption amount is 5.43 Million Dollars per individual. If the value of your estate exceeds such Federal Tax Exemption at your death, then your Estate may receive a large tax bill. Life insurance proceeds can be kept out of that Exemption calculation by creating an Irrevocable Life Insurance Trust and designating the Irrevocable Life Insurance Trust as the beneficiary. The Irrevocable Life Insurance Trust Agreement then designates who will be the end beneficiary of the proceeds, after your death and under what terms (outright or to be held further in Trust).

The Qualified Personal Residence Trust

The Qualified Personal Resident Trust is a very popular estate planning tool as it allows you to stay in your personal residence (or your home) for a number of years, yet received a reduce valuation so that the entire value of the home is not included in your Estate for tax purposes. The Agreement for the Qualified Personal Residence Trust is funded with your property, or money to purchase a qualifying property within three months of execution. The Qualified Personal Residence Trust Agreement also states a number of years for which the residence stays in the Trust. If you survive the term of years, then the residence goes to beneficiaries or another Irrevocable Trust. You may continue living in the residence, but at that point you will have to pay rent to the new owner. If you do not survive the term of years, the residence reverts back into your name and gets included into the value of your Estate, therefore, it is important to choose a reasonable term of years that you will survive. Further, each tax payer can have up to two Qualified Personal Residence Trusts.

Special Needs Trust

The Special Needs Trust, or Supplemental Needs Trust as it is commonly referred to as, is a special Trust which allows a person who is eligible for public benefit programs to receive such benefits while also receiving a supplemental income stream for non-necessity items (such as vacations, beauty salon visits, gifts for children and grandchildren, etc.). A Special Needs Trust is irrevocable and cannot be modified upon creation. The Special Needs Trust can be created by the public benefits beneficiary (referred to as a Self-settled Special Needs Trust) or a family member, loved one, or Trustee (Third Party Special Needs Trust). This depends wholly on capacity and the financial situation of the public benefits beneficiary.

Intentionally Defective Grantor Trust

An intentionally defective grantor trust (also known as the “IDGT” or “DGT”) is a type of sophisticated estate planning where a complete transfer to an irrevocable trust for transfer tax purposes occurs, however, the transfer is incomplete, or “defective,” transfer for income tax purposes. Defective Grantor Trusts are commonly used where an individual has a lucrative business and/or real property. The Settlor, or Grantor is treated as the owner of the property for income tax purposes, but not for estate tax purposes – therefore staying under the 5.4 Million Dollar Federal Tax Exemption at death. Also, because the Grantor is treated as the owner of the assets in a Defective Grantor Trust for income tax purposes, the sale of an asset by a Grantor to his Defective Grantor Trust will not trigger a gain.

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