No single estate planning tool will be ideal for every situation in which an estate’s assets are being distributed. Nonetheless, irrevocable family trusts do have certain broad advantages for many estates.
The estate lawyers at Kantrowitz, Goldhamer & Graifman work with residents of New York and New Jersey to plan and administer the most cost-effective estate plans that provide assurances of an optimum transfer of generational wealth with minimal adverse tax consequences on the estate and its heirs. Continue reading to learn more about the consequences and potential benefits of establishing an irrevocable family trust.
The basics of an irrevocable family trust.
Every form of a trust includes three parties: the person who grants it, the trustee or administrator of the property in the trust, and the beneficiaries who enjoy the benefits of that property. In a family trust, the beneficiaries are all related to the grantor. The grantor makes the trust irrevocable by signing a trust deed in which he or she relinquishes all legal title to the property that is transferred into the trust. That property is then managed by a trustee for the benefit of the beneficiaries. Because the trust is irrevocable, its terms generally cannot be amended without the express approval of all of its beneficiaries.
Irrevocable family trusts have certain liability and tax advantages.
An individual might transfer property into an irrevocable trust to shield it from being attached by the grantor’s creditors to settle lawsuits or other debts. The property in a trust is also removed from the overall value of the grantor’s estate, which can reduce estate taxes for high net-worth individuals. An irrevocable family trust might also be established or transferred into the jurisdiction of a state with more favorable state tax treatment.
A grantor can control how the assets and income from an irrevocable family trust are distributed.
The grantor of an irrevocable family trust might have concerns over the dissipation of his or her assets by beneficiaries. In this case, an irrevocable family trust enables a grantor to create conditions under which the trust’s assets will be used and distributed to those beneficiaries.
An irrevocable family trust might be used to shelter assets from consideration in the determination of eligibility for government benefits.
A trust grantor can retain eligibility for government benefits such as Medicaid and Supplemental Security Income by transferring property into an irrevocable family trust. Within the limitations of certain look-back restrictions, when the trust takes title to the property, that property will no longer be included in the determination of eligibility for those programs. The grantor cannot be the same person as the trustee in this situation.
Under certain conditions, a court may be able to reclaim assets from an irrevocable family trust.
Creditors and other parties that have claims against the grantor of an irrevocable family trust might make a claim on the assets in that trust by arguing that it was fraudulently established to illegitimately remove assets from satisfying a debt or a judgment. Given this potential risk, any person who is interested in establishing an irrevocable family trust should consult with an experienced estate and trust attorney who can provide the necessary advice to establish the trust with the maximum possible protection.
Irrevocable family trusts are difficult to modify.
The grantor of an irrevocable family trust should never assume that he or she will be able to modify the terms and conditions of the trust or the composition of the property in it. This remains true, for example, regardless of changes in applicable estate tax laws that might make it more beneficial for a grantor to retake title to property in the trust, and regardless of deterioration of the relationship between the grantor and any trust beneficiaries. In all cases, the trustee makes all decisions that affect the use and disposition of the property in the trust.
Call KGG for Help in Establishing an Irrevocable Family Trust
The trust administration lawyers at Kantrowitz, Goldhamer & Graifman advise individuals in New York and New Jersey on the formation and administration of irrevocable family trusts. You and your estate and heirs may be able to realize significant benefits from an irrevocable family trust, even if your estate does not include substantial assets.