For those desiring to reduce the value of their taxable estate, then having an irrevocable trust in place can be very beneficial for them. When they place their assets in a trust in which they have little or no control, they will no longer be considered to be the owners of the assets and, therefore, the assets will not be included in their taxable estate. The only disadvantage of the irrevocable trust is when the asset is placed in the trust, it may be subject to the federal gift tax. But the gift tax will not be applicable should the value of the asset is less than that permitted in the annual exclusion, or if the trust is for the sole benefit of a spouse or charity.

One other use of an irrevocable trust is removing the proceeds of a life insurance policy from the taxable estate.

An irrevocable trust can be beneficial in protecting assets from creditors, or potential creditors, of the individual establishing the trust or the creditors of the beneficiaries of the trust. Depending on applicable state law, creditors of a beneficiary of a trust will probably be unable to reach the assets of a trust where the beneficiary has little or no control over the assets.

Implementation techniques which have tax advantages in another way of using irrevocable trusts in estate planning. One technique is a establishing a personal residence trust. This is when a home is transferred to a trust in order to remove it from the taxable estate. Another technique is a charitable trust. A charitable trust provides for assets to be given over to charity either at a particular time in the future, or for a certain limited period of time. Either way, the charitable deductions will be available for a portion of the value of the assets that are placed in trust and/or the income the generated by the assets.

If you would like more information regarding asset protection, trusts, family limited partnerships or the subject of this article please call or email our office.