Irrevocable Living Trust Lawyer
Creating an irrevocable living trust has many benefits, including tax reduction and protection from creditors. But what is an irrevocable living trust, and when should you create one? The sooner you plan your estate, the better you can protect yourself and your loved ones. To learn more about how a Lancaster CA irrevocable trust lawyer can help, contact Herbert Law Office today.
Why Would I Want to Use an Irrevocable Living Trust?
Unlike a revocable living trust, once you finalize an irrevocable living trust, you no longer have ownership rights over the assets you put into it. Despite this inflexibility, an irrevocable trust can be useful to grantors and beneficiaries.
Irrevocable living trusts are most useful to avoid estate taxes on trust property that is transferred after you pass. They can also reduce your income taxes by retaining income generated by the trust property you place into them. Because the trust’s assets belong to the trust, taxes are applied to it and not to you as grantor.
Another benefit of an irrevocable living trust is that it protects your assets from creditors and liability. Because the trust’s assets belong to the trust, creditors cannot take them through liens or judgments until they are distributed.
While any asset can be placed into an irrevocable living trust, some make more sense than others. An irrevocable living trust is the right estate planning tool for you if you have a lot of highly-appreciating assets. The future growth in income and appreciation from those assets maximizes the amount that will pass tax-free to beneficiaries. A Lancaster CA irrevocable living trust lawyer can help you determine what type of trust is best suited to your needs.
What Types of Irrevocable Living Trusts Are Available to Me?
The following seven types of irrevocable living trusts are created to reduce taxes:
- Bypass Trusts are commonly established by spouses to minimize estate taxes after both have passed. After one spouse dies, the other can use the trust property but does not own any of it. This way, the assets avoid estate taxes when they are distributed to beneficiaries.
- QTIP Trusts are created by couples to avoid paying estate taxes until the surviving spouse passes.
- QDOT Trusts are used the same way as QTIP trusts, but when one of the spouses is not a citizen.
- Charitable Trusts provide assets to a charitable organization to lower income and estate taxes. They can be set up so that a charity receives income from the trust for some time. Or, they can name the charity as the final beneficiary of the trust.
- Generation-Skipping Trusts are used to minimize estate taxes for wealthy families. They name a grandchild as the final beneficiary and a child as an income beneficiary with no ownership rights.
- Life Insurance Trusts contain life insurance policies during your lifetime, removing the proceeds from your estate. Its tax benefits are only realized if the trust owns the policy for at least three years before you pass.
- Grantor-Retained Interest Trusts allow you to place assets into them and receive an income from them for some time. They can be created to provide you a fixed or variable annuity or the right to live in trust property. After the time period ends, the beneficiaries own the property. However, their gift will be taxed at a value set at the time of the trust’s creation.
The following two types of irrevocable living trusts are created to protect property from creditors and benefit loved ones with special needs:
- Spendthrift Trusts protect assets from being squandered by beneficiaries who cannot manage the money wisely. Since the trustee controls the trust, the beneficiary cannot access it on their own. This protects the trust’s assets from the beneficiary’s creditors.
- Special needs trusts protect the assets of the disabled with special needs. It provides them financial support without jeopardizing their government benefits. The trustee can use trust funds to pay for certain goods and services. But, the beneficiary does not ever own anything in the trust. So, it is not considered when they apply for government benefits.
How Are Irrevocable Living Trusts Treated in California?
California law treats irrevocable living trusts differently from some other states in three ways:
1. Split Interest
In California, you can create split interest trusts, which provide income to separate beneficiaries at separate periods of time. An example is a charitable remainder trust, which pays the grantor or family member an annual income for some time. After the time period ends, the property left in the trust is transferred to a charitable beneficiary.
California law allows modifications to irrevocable living trusts under special circumstances. For example, you can change the trust to name a trust protector that will have limited management rights. This will often be an impartial fiduciary agent, such as an accountant or attorney. California law also allows modifications to irrevocable living trusts if the beneficiaries consent and petition the court. Such trusts can also be revised to comply with new tax laws.
Speak to a Lancaster CA Irrevocable Living Trust Lawyer
At Herbert Law Office, we can guide you through the process of establishing and administering an irrevocable living trust. Contact Herbert Law Office today for a consultation with an experienced living trust attorney.