If you’re looking for ways to maximize your beneficiary inheritance after your death, you should consider creating an irrevocable trust. Although a last will and testament can allow you to distribute your assets to heirs, a trust can help you avoid the probate process and reduce federal estate taxes. However, the type of trust you establish should reflect your unique wishes for how your assets will be handled in the future. Please continue reading to learn whether an irrevocable trust is best suited to your needs and how a competent Montgomery County Trust Attorney can help you protect your assets.
How Does an Irrevocable Trust Work?
Many people choose to establish irrevocable trusts to help protect their assets and minimize federal estate taxes. The creator of the trust also referred to as the grantor, can designate assets to be transferred to beneficiaries. As its name suggests, an irrevocable trust cannot be modified, amended, or terminated once it has been created. This is because the grantor forfeits ownership and authority over the trust and its assets. Essentially, they are prohibited from making any changes without permission from the beneficiaries or by a court order.
When a grantor dies, the assets within the trust will be distributed to the beneficiaries according to the terms of the trust. It’s important to understand that assets in an irrevocable trust are generally exempt from the grantor’s taxable estate. This is particularly true if the grantor has a large estate. Additionally, it can also avoid probate. The entire process of administering an estate through probate can take up to a year or more. During that time, you may face many different probate costs.
Moreover, irrevocable trusts come in two forms: living trusts and testamentary trusts. When you use your will to create an irrevocable trust, it’s a testamentary trust. They are created after the death of the grantor and are funded from the estate according to the terms of the will. A living trust is an irrevocable trust that is set up and funded during your lifetime. Some of the most common trusts that people choose to draft in Maryland include the following:
- Irrevocable life insurance trusts
- Grantor-retained annuity trusts (GRATs)
- Qualified personal residence trusts (QPRTs)
- Charitable remainder annuity trust
- Special needs trust
- Domestic asset Protection Trust (DAPT)
An irrevocable trust is a more complex legal arrangement than a revocable trust. That said, if you’re considering creating this type of trust, please don’t hesitate to contact JD Katz. Our legal team is prepared to help you safeguard your legacy.
