Can You Have Your Cake and Eat It Too With Irrevocable Trusts?
By: Barry E. Haimo, Esq.
June 25, 2021
Irrevocable trusts tend to be a bit misunderstood. When most people think of these types of trusts, they think that they don’t offer any type of flexibility. And, in fact, if you do a search for irrevocable trusts online, the definition given is of trusts that, once created, cannot be altered or terminated without the consent of the beneficiary.
However, this doesn’t tell you the whole story. The good news is that irrevocable trusts offer far more flexibility than you may realize, making them an estate planning tool that can let you have your cake and eat it, too.
Basics of Trusts in General
Trusts are created by a settlor or grantor who gives property or funds to the trust. The settlor, as the creator of the trust, sets the terms under which the assets of the trust are distributed and managed.
The settlor will name a trustee or several trustees to manage the trust – they can even include themselves as one. They then designate the beneficiaries that are to benefit from the trust and be given its principal and income.
With an irrevocable trust, the settlor transfers ownership of their assets to the trust, removing their rights of ownership. However, irrevocable trusts are more flexible than they appear.
That’s a good thing, since they’re such a fantastic tool for helping reduce both estate and income taxes, in addition to providing the settlor with a way to avoid probate and give them protection from creditors.
Ways an Irrevocable Trust Can Be Modified
Even though many people assume that irrevocable trusts can never be changed, the truth of the matter is that when circumstances change, an irrevocable trust can as well.
Private Settlement Agreements
If a trust is no longer economically viable to maintain or no longer needed, then it may allow an independent trustee to modify the provisions — or even terminate the trust to distribute its assets outright. Some states also allow material changes to a trust if the parties are all in agreement. An experienced estate planning attorney can help you with this option.
If the language of the trust or a private settlement agreement won’t work for a specific situation surrounding an irrevocable trust, decanting may be what you need. It allows trustees to distribute assets from an old trust to a new one with different terms and without the approval of the beneficiaries or the courts. Florida law on this is very specific, though, so make sure to check with an attorney.
Irrevocable trusts are a great tool and should not be overlooked because they are seen as too stringent and unchangeable. The truth of the matter is that you can have all of the protections of an irrevocable trust, but still retain some flexibility if things change down the road in many situations.
Working with an experienced estate planning attorney can help you build a trust that works for you and give you the flexibility you want and need in order to give you peace of mind. Leaving a legacy you can be proud of is easier than you think. Call us today to learn more.
Barry E. Haimo, Esq.
Strategic Planning With Purpose®
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