Many people in Camillus, New York think estate planning only involves making a will, but they have more options. A person can create a trust to hold assets for a beneficiary until a specified date. Trusts come in several types, but irrevocable trusts are a common type with pros and cons.
How irrevocable trusts work
A trust commonly involves three parties: the grantor, or creator of the trust, trustee who oversees it, and the beneficiary. Only the beneficiary has the power to terminate or amend the trust after its creation. However, the trust may get modified under certain circumstances, such as changes in tax law.
Irrevocable trusts come in many forms, but the two main types are trusts funded during or after a grantor’s lifetime. For example, a testamentary trust gets funded by the estate after the grantor’s death, which makes it irrevocable by design. Other examples of irrevocable trusts include charitable reminder trusts, life insurance, and qualified personal residence.
Pros and cons of irrevocable trusts
A main drawback of irrevocable trusts is the grantor cannot earn income on the assets.
However, it has fewer tax implications on the estate for the same reason, and it also protects assets from creditors.
The only tax a trust could be subjected to is federal tax if it earns over $600. An irrevocable trust as part of estate planning may make someone in professions with a high risk of lawsuits judgment proof. The grantor may name a specific age for the beneficiary to access the trust reduce the risk of misusing assets.
Trust aren’t just for rich people, and they make a useful alternative to wills. If a person has questions about trusts, an attorney may be able to advise them.