Irrevocable Living Trust

Irrevocable Living Trust

Irrevocable Living Trust - Advantages and Disadvantages

An Irrevocable Living Trust is an arrangement in which the grantor departs with ownership and control of property. Usually this involves a gift of the property to the trust. The trust then stands as a separate taxable entity and pays tax on its accumulated income. Trusts typically receive a deduction for income that is distributed on a current basis. Because the grantor must permanently depart with the ownership and control of the property being transferred to an irrevocable trust, such a device has limited appeal to most taxpayers.

Irrevocable Living Trust - Advantages

  • You observe your trustee in action
  • You avoid probate and court costs
  • You probably will save some fees
  • It is a good way to pass property to charity
  • You save any taxes there may be on the property going to charity on your death
  • With irrevocable charitable remainder trusts, created while you are living, you can get an income tax deduction during your life
  • You may save taxes on capital gains on property placed in a charitable remainder trust

Irrevocable Living Trust - Disadvantages

  • Property must be transferred, so there is initial cost in setting up the trust
  • You lose all control over the property with most irrevocable trusts
  • It requires annual fiduciary accounting and possible tax returns
  • It may require payment of annual trustee fees
  • There may be fees at the time of trust termination
  • You can't change your mind and get the property back

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