In many cases, parents will leave property to their child, or other beneficiary, in Trust rather than outright which can be done whether the child is a minor or adult. The property will pass into an irrevocable trust which is administered by the Trustee.
Why Create an Irrevocable Trust?
An Irrevocable Trust, properly designed by a knowledgeable attorney, can protect property in many ways, but here are three of the top benefits:
- Protects Property From Beneficiary’s Creditors
If left in an Irrevocable Trust, property is out of reach from the beneficiary’s and grantor’s creditors and former spouses. Because of the protection it affords, it is a popular option for parents. Keep in mind, however, that even in an Irrevocable Trust, property may be used to pay delinquent taxes or child support.
- Estate Taxes
If property is left to a beneficiary outright instead of an Irrevocable Trust, the property will be part of their estate when it comes to federal taxes if they still own it at the time of their death. By using an Irrevocable Trust, in most cases the property will not be taxed at the beneficiary’s death.
- Asset Distribution
Many people, when given a huge sum of money at once, have a difficult time handling the responsibility. In many cases, the money is squandered, and the beneficiary files for bankruptcy (consider lottery winners as an example). This can be avoided by prepared management.
An Irrevocable Trust allows parents to leave assets to a beneficiary gradually instead of all at once. This gives the beneficiary, especially a child, the opportunity to learn how to handle the money as they mature.
Who Is Involved In An Irrevocable Trust?
There are three players:
- The creator of the Trust (Grantor)
- The Trustee (manages Trust assets)
- The Beneficiaries (recipient of the Trust)
When an Irrevocable Trust is designed by a knowledgeable and competent attorney, parents can be assured that their estate will be left in capable hands.