When you create a living trust, you may choose to make it revocable or irrevocable. A revocable trust enables you to change or terminate the trust at any time, while an irrevocable trust does not—it is permanent. In an irrevocable trust, the person creating the trust (called the grantor) gives up all rights of ownership to whatever property or assets are placed in the trust, permanently.
The main benefits of an irrevocable trust are that they provide certain tax advantages and enable you to give assets away before you die. One tax advantage is that property put into an irrevocable trust is not subject to federal estate tax since the grantor gives up complete ownership rights to the trust property.
One way that irrevocable trusts are commonly used is for life insurance. Life insurance that you intend to be used for estate taxes may be put into an irrevocable trust; this serves to keep the life insurance proceeds separate from the grantor’s estate and, therefore, not subject to estate taxes. The best way to establish an irrevocable trust for life insurance is to establish the trust first and then have the trust purchase the policy. Having the trust purchase the insurance is important as any insurance gifted within three years of a person’s death is automatically subject to estate taxes, even if it is gifted to an irrevocable trust.
In addition to life insurance trusts, other types of irrevocable trusts include, but are not limited to:
- charitable remainder trusts,
- credit-shelter trusts,
- generation-skipping trusts, and
- qualified personal residence trusts.
A qualified attorney can help you understand the differences between these types of irrevocable wills. Keep in mind that there are many complex tax rules that must be understood before choosing to establish an irrevocable trust.
Our New Mexico estate planning lawyers have up-to-date information about trusts and can help you understand the complex tax issues and other legal matters you should consider before establishing a trust. Irrevocable trusts are not appropriate for every estate plan. Our attorneys will take the time to sit down with you and discuss the various options available to you so that you can create the best estate plan for your circumstances and goals.
If you would like to learn more about irrevocable trusts and estate planning contact one of our New Mexico estate planning lawyers in Albuquerque, Farmington, Las Cruces, Roswell or Santa Fe today.