Irrevocable trusts can be an important component of estate plans, and are most commonly used to facilitate the transfer of wealth to younger generations, to shift income from the settlor to other family members to reduce the family's overall income tax liability or to remove property from the settlor's estate as a way of reducing the family's overall estate tax liability
The type and design of an irrevocable trust depends on the purpose of the trust. There are many considerations, however, that must be taken into account before creating one.
At Hartmann Law, our estate planning attorneys in New Jersey will thoroughly review your needs and wants when planning your estate and provide an outline of your best options, including the creation of an irrevocable trust. Contact us to schedule a consultation today.
Understanding Irrevocable Trusts in New Jersey
An irrevocable trust is a trust that cannot be changed, amended, or terminated after it is created (with some limited exceptions). By creating an irrevocable trust, the grantor is relinquishing their control over the assets placed in the trust. Since the grantor does not retain any legal rights over the assets transferred to the trust and possesses no legal rights over them, his or her creditors cannot reach those assets, unless the terms provide that trust property can be distributed to the grantor or for the grantor's benefit (i.e., the grantor is a beneficiary of the trust).
Irrevocable trusts are administered by a trustee for the benefit of the trust beneficiaries.
Pros of an Irrevocable Trust in New Jersey
There are various reasons a grantor may choose to place assets in an irrevocable trust, including:
It is possible to reduce your tax liability by moving taxable assets from your estate to an irrevocable trust. This is typically a more beneficial move for owners of large estates.
Irrevocable trusts provide protection to the assets that they contain. This includes protection from creditors, judgments, and divorce. People employed in highly litigious professions are most likely to use irrevocable trusts for this purpose.
Irrevocable trusts are a useful estate planning tool when you are providing for a family member with special needs. These trusts are often referred to as irrevocable special needs trusts, and they allow a beneficiary with a disability to receive funds for their living expenses without that income being used to disqualify them from receiving government benefits.
Cons of an Irrevocable Trust in New Jersey
There are various reasons a grantor may choose against placing assets in an irrevocable trust, including:
Loss of Control
If you desire to maintain control over your assets, an irrevocable trust may not be the best choice for you. Changing the terms of an irrevocable trust is something that is not easily accomplished after it has been formed unless all parties (trustee and beneficiaries) are on board.
While the formation of an irrevocable trust may seem like a good idea when it is established, circumstances change, and it may not be the best choice down the road. Even so, you will not be able to easily change the terms to fit your new situation.
Terminating an Irrevocable Trust in New Jersey
In limited circumstances, it may be possible to terminate an irrevocable trust by agreement when all parties, including the trustee and the qualified beneficiaries, agree to do so, and is not inconsistent with a material purpose of the trust. Modification or termination of an irrevocable trust may also occur pursuant to a judge's order. Judges are more inclined to make these changes or terminate an irrevocable trust when it is obvious that the purpose of the trust has been fulfilled, has become illegal, or is defeated by compliance with the terms of the trust.
Otherwise, irrevocable trusts will end naturally pursuant to the terms that were established when the trust was created. It is typically dependent upon an event, such as the death of the person that created the trust, or it will end on a certain date.
Contact Hartmann Law
Take steps to start your Life and Legacy planning today! Take action to ensure you voice is heard when you are unable to speak for yourself. We will help you with trusts, wills, powers of attorney, and other estate planning documents that suit your specific needs. Make the decision to protect yourself, your loved ones, your business, your property by design and not by default!
Schedule a call today with Hartmann Law, providing Life and Legacy plans ready for today with an eye on the future.