We’ve moved! We didn’t go far and look forward to seeing you in our new space located at 1255 Crescent Green Drive, Suite 200, Cary, NC 27518

Estate Planning Basics, Part 6: Irrevocable Trusts

Irrevocable trusts are a scary concept for some: “I have to give up ownership and control over my property? Why would I want to do that?”

Irrevocable trusts are normally used for some financial benefit: (1) tax avoidance, (2) creditor protection; (3) Medicaid eligibility; or (4) other need-based benefits. In order to fully utilize the benefits of an irrevocable trust, you have to (*gasp*) title your property in the name of the trust. That means executing an assignment (tangible personal property and accounts) or deed (real property) transferring ownership of the assets to the trust. Why is that so scary? Because irrevocable trusts are just that – irrevocable, i.e., you can’t revoke the assets from the trust. In order to terminate the trust or revoke its assets, you’ll normally have to get a Court order allowing it.

These sorts of trusts should not be used lightly. These are not probate avoidance or living trusts.

Their single biggest advantage is avoiding estate taxes by reducing the size of the testator’s taxable estate. While revocable/living trusts still count against your taxable estate (not your probate estate), by actually transferring ownership and control of the assets to an irrevocable trust, you remove them from both your probate and taxable estate (which includes life insurance proceeds).

For example, if your net worth is $7 million you are approximately $1.5 million over the federal estate tax exemption amount. If you died with that amount in your taxable estate, your family will take a tax hit of up to 40% on the $1.5 million that’s over the exemption amount ($600,000). By moving $1.5 million in assets into a irrevocable trust, your family can avoid that tax penalty and keep the $600,000 they would have lost otherwise.

Irrevocable trusts are tricky – don’t attempt to create one on your own!

Author Bio

Paul Yokabitus

Paul Yokabitus is the CEO and Managing Partner of Cary Estate Planning, a Cary, NC, estate planning law firm. With years of experience in estate and elder law, he has zealously represented clients in various legal matters, including estate planning, guardianship, Medicaid planning, estate administration, and other cases.

Paul received his Juris Doctor from the Campbell University School of Law and is a North Carolina Bar Association member. He has received numerous accolades for his work, including being named among the “Best Attorney in Cary” in 2016 and 2017 by Cary News and Rising Star in 2020-2023 by Super Lawyers.

LinkedIn | State Bar Association | Avvo | Google