Irrevocable Trusts and Tax Protection
A Utah Irrevocable Trust is a powerful tool that can provide significant benefits including tax advantages, asset protection. Irrevocable Trusts are not one-size-fits all documents; rather, they are extremely specific. At Morgan Law we can help you decide if an Irrevocable Trust can integrate with your estate plan.
Understanding Irrevocable Trusts
Estate and Tax Considerations
Irrevocable trusts are primarily set up for estate and tax considerations. The trust removes all incidents of ownership, taking the trust’s assets out of the grantor’s taxable estate. This can help lower the total value of the grantor’s estate, potentially reducing or even eliminating estate tax liability.
Asset Protection
Assets held in an irrevocable trust are generally protected from creditors and legal judgments. This can be particularly beneficial for individuals in professions that may make them vulnerable to lawsuits.
The Federal Estate Tax
Often referred to as the “death tax,” the federal estate tax is a tax levied on a deceased person’s gross estate. The tax rates range from 18% to 40%. This tax only applies to larger estates, there is an exemption amount that each person can leave tax free to their heirs. The estate tax is designed to prevent the accumulation of wealth within a family and ensure that a portion of large estates contributes to federal revenue.
The Generation-Skipping Transfer Tax (GSTT)
Is another federal tax imposed on transfers of property to beneficiaries (other than a spouse) who are at least 37½ years younger than the donor. This tax was introduced to prevent wealthy families from avoiding estate taxes at the death of each generation by making gifts or bequests directly to grandchildren or great-grandchildren. The GSST is generally added on the Federal Estate Tax, so if your estate isn’t large enough for one tax it won’t be large enough for the other.
Types of Irrevocable Trusts
There are several types of irrevocable trusts, each serving different purposes. For example, an irrevocable life insurance trust can help avoid estate taxes on large life insurance payouts. A marital trust can transfer assets from one spouse to another at the time of the first spouse’s death. Charitable trusts allow you to receive income from your assets for a set period, with any remaining assets or income going to a charity of your choice. Following are just a few examples of commonly used Irrevocable Trusts
1.
Testamentary Trusts
These usually start as revocable trusts, but become irrevocable when the trust creator passes away. The purpose of a testamentary trust is to protect or guide the use of assets for the trustmaker’s heirs. For example, a parent who wants to ensure that their son who struggles with drug addiction doesn’t have unrestricted access to his inheritance, can create a testamentary trust to serve as a safety net for him once they pass awa
3.
Irrevocable Asset Protection Trusts
These are common if someone wants to shield their assets from potential creditors. For more information, check out our page on Utah Domestic Asset Protection Trusts.
5.
Credit Shelter Trusts
The idea here is to hold assets up to the amount of an individuals Estate Tax Credit (the amount each person can leave tax free at their death) thus ensuring the assets pass free from estate tax.
2.
Irrevocable Marital Trusts
These are common in second marriages or in cases of high net worth. The Irrevocable Marital Trust allows the creator of the trust to allocate assets for their spouse’s use but which their spouse cannot directly control. For example if one spouse has children from a prior marriage, the irrevocable trust can hold the home allowing the surviving second spouse to use the residence for rest of his or her life but still ultimately passing the property to the children from the first marriage.
4.
Irrevocable Life Insurance Trusts
Created to hold life insurance policies, the proceeds of which are not subject to estate and gift tax.
6.
Special Needs Trusts
These are trusts where assets are placed to separate them from an individual who qualifies for government disability assistance. Disability programs often impose limits on how many assets a recipient of benefits can have to their name. For more information on Special Needs Trusts check out our page entitled Special Needs Trusts.
Why Choose Us
Expertise
Morgan Law has specialized knowledge in estate law and has extensive experience in setting up irrevocable trusts. They understand the nuances of the law and can ensure that your trust is set up in compliance with all relevant laws and regulations.
Personalized Service
Morgan Law provides personalized service, understanding your specific needs and tailoring the trust accordingly. They take into account your unique circumstances and goals to create a trust that provides the maximum possible protection for your assets.
Ongoing Support
Morgan Law offers ongoing support to help you understand how to manage your trust. They can provide advice on issues that may arise in the future, ensuring that you’re supported and legally advised.
Peace of Mind
Perhaps the most important reason to choose Morgan Law is the peace of mind that comes from knowing your trust has been set up correctly, in accordance with all relevant laws and regulations. You can focus on living life, knowing that your assets are protected and that you have a team of professionals ready to assist you with any questions or issues that may arise.
In Conclusion
Setting up an irrevocable trust is a complex process that requires specialized knowledge and experience. Morgan Law has both, along with a grounded approach, making us an excellent choice for anyone considering this type of trust.
