One way of reducing your future tax liability and creating a proper inheritance equation, without the need of creating a will is by establishing an irrevocable trust. It saves your estate inheritors from the lengthy procedure of going through a court ordered probate to determine the authenticity of a will and makes for a much smoother inheritance plan.
Not only does it help sort your business, after you have passed on, but it also helps cut down your personal tax debt substantially, during your lifetime. With so many benefits, it's necessary that you get to know how irrevocable trusts are set up. That's exactly what this Buzzle article is devoted to. Keep reading ahead to get a short primer on setting up irrevocable trusts.
About Irrevocable Trusts
Once you create an irrevocable trust by transferring your assets over to a trustee and beneficiaries, you relinquish all control and claims over them. They are no longer a part of your personal estate or property and therefore you are no longer liable to pay the taxes that are imposed on them. You lose the right to make any change in the agreement, once you sign it.
All future decisions regarding the assets are dictated by the terms of the agreement and will of the trustees and beneficiaries you enlist, to whom the assets will pass over eventually. You also protect your assets from your personal creditors, once you have transferred assets over to such a trust. Let me now walk you through the stepwise details of creating an irrevocable trust.
Establishing an Irrevocable Trust
There are several legal and financial details that need to be taken care of, to set up an irrevocable trust. Here are stepwise guidelines on the creation of irrevocable trusts.
Know the State Laws About Irrevocable Trusts
Right at the beginning, it is important that you are exactly clear about what are the state and federal laws associated with irrevocable trusts. Get information from a qualified attorney, regarding the creation of an irrevocable trust, its prerequisites and legal formalities involved in its creation.
Decide on the Structure, Purpose and Beneficiaries of the Trust
An irrevocable trust is a legal tool that allows you to lessen your estate tax burden and also create an inheritance plan that may be executed after your demise, or in your lifetime. Hence the trust needs to have a purpose behind its creation and a time bound or conditional plan detailing its execution by a trustee. Ergo, it's necessary to decide how to divide your assets among beneficiaries. So you need to outline an inheritance plan and decide who are going to be the beneficiaries. Determine the terms and conditions under which the trust may be dissolved in the future. Proceed further only after you are sure about all these details.
Choose a Reliable Trustee
Also, you need to find a loyal friend or attorney, whom you can trust enough to be the trustee and manager of the irrevocable trust. May this be a person who exactly understands how you want things to be handled, as once you have relinquished control, all responsibility of your assets is transferred to him or her. You may also have to choose a successor trustee who can handle responsibility, in case your chosen trustee is unable to execute his duties for any reason.
Get Irrevocable Trust Agreement Drafted
Contact your attorney and get a watertight legal agreement drafted, which embodies all the goals you plan to accomplish through the creation of the trust. Read and reread until you are sure that everything is just as you want it to be.
Sign the Agreement in Presence of a Notary Public and Witnesses
Once the agreement draft is ready and you are decided on the trustee appointment as well as beneficiaries, you can go ahead with signing of the trust and bringing it in force. Usually, in most states, it is required that you sign the agreement in front of witnesses and particularly a notary public. Know what your state laws demand and sign the agreement in presence of witnesses accordingly, to finalize it.
Transfer Assets Over to the Trust
Once the legal arrangement is made and the agreement is created, you need to take care of the financial details involved. You need to create separate accounts for your trusts and ask your attorney to get all your assets legally transferred in the name of the trust. Ensure that the trust and assets under its control are provided adequate finances for maintenance in the future. That concludes the process of creating an irrevocable trust.
Considering the complex nature of the irrevocable trust agreement, it's essential that you take help from an attorney who is well versed in the intricacies of family law and preferably specializes in creation of trusts. Once an irrevocable trust is created, it's set in stone and hence care should be taken to ensure that it is drafted exactly as you want it to be. You cannot make any changes in the trust later, though under special circumstances you may be able to terminate an irrevocable trust. It makes sense in taking your time to decide all the terms and conditions of your irrevocable trust and ensuring that it serves its purpose.