Setting up an irrevocable trust can be a strategic move when making your estate plans. It can help you avoid probate while protecting your assets from third parties, which can go a long way in securing your legacy.
However, it is essential to consider some key factors before creating an irrevocable trust to ensure it aligns with your goals and financial situation. Below are some of the things you need to know.
Loss of legal ownership and control of the trust assets
Once you transfer assets into an irrevocable trust, they no longer belong to you. Ownership changes to the trust, and you cannot remove these assets from the trust whenever you wish. They are considered the property of the trust and will be managed according to the terms you set when establishing the trust.
Irrevocability
As the name suggests, you cannot just decide to revoke an irrevocable trust or change its terms after its creation. Doing so may require a court order or the consent of the beneficiaries, which is why you should be comfortable with the terms and conditions of the trust when creating it.
Tax implications
While the assets in an irrevocable trust will not be considered part of your estate when paying estate taxes, they may be subject to certain federal or state taxes. It’s important to understand the tax consequences of creating an irrevocable trust and how they may affect your finances.
Costs and fees
Establishing and maintaining an irrevocable trust comes at a cost. Ensure you understand the cost of setting up and running the trust before moving forward to avoid unexpected or unintended expenses.
If you are looking into including an irrevocable trust in your estate plans, seeking legal guidance can help you understand how everything works and ensure you make informed decisions.