How Safe Assets Are in an Irrevocable Trust?
One of the main goals of estate planning in Schaumburg, IL is to minimize estate and income taxes while transferring a grantor’s wealth to the future generations. One way to achieve this goal is by placing assets into an irrevocable trust, which then removes that property from the grantor’s possession. But are irrevocable trusts safe?
When using an irrevocable trust, the trust requires all control and ownership of the assets placed in the trust to be relinquished by the grantor. This could make a parent hesitant to put their child’s inheritance in this type of trust. What would happen in the beneficiary of the trust gets a divorce or is financially irresponsible? Will the irrevocable trust be able to protect the assets from an ex-spouse or creditors?
An asset protection lawyer from Bott & Associates, Ltd. can answer all your questions in detail. In the meantime, the following is a brief overview.
Basics of Trusts
- Irrevocable Trusts: An irrevocable trust is a living trust that cannot be changed. Once the assets are transferred into the trust, the trust becomes the owner of the asset.
- Grantor: The person who transfers ownership of their assets to the trust.
- Trustee: The person or corporation that is responsible to manage the property in a trust as well as carry out the function and purpose of the trust.
- Beneficiary: The person the trust was created for and who will receive the benefits from the trust.
Something important to note is trust interpretation is defined by the state. Courts are able to use the trust documents to decide if a beneficiary can control over the distributions of the funds. If the court decides that the beneficiary does not have control, then the assets cannot be considered a marital asset if there is a divorce and the assets in the trust cannot be accessed by creditors.
Who Has Rights to the Money?
An irrevocable trust can become complicated once divorce or creditors become involved. It is the job of an asset protection lawyer to help educate you to ensure these assets are protected. There are a few provisions that you should know to help protect the assets you wish to leave to your heirs:
- Powers of Appointment: These provisions allow the beneficiaries to create new beneficiaries to share the assets. However, the greater the powers of appointment, the higher the risk becomes that the assets will be exposed. This can allow trust assets to become exposed in a divorce or by creditors.
- Beneficiary as trustee: A grantor could choose to make a beneficiary also the trustee. By doing this, the assets then can become vulnerable in debt settlements and divorces.
- Mandatory Income: Trusts usually have a provision that is mandatory and states that the trustee will need to pay income to the beneficiary. The mandatory income payment is considered a marital asset in some states.
The Best Preparation
By working with an experienced asset protection lawyer Schaumburg, IL clients recommend, you can learn how trusts work and the risks associated with them. If you are considering creating an irrevocable trust to protect your assets for your next generation, you should speak with an experienced attorney. By knowing the potential risks of different types of trusts, you can make the best decision for your family. Call Bott & Associates, Ltd. today to set up a consultation to discuss all your asset and estate planning needs.