The Benefits of an Irrevocable Trust
Creating an irrevocable trust is one of the most effective ways to ensure that your family or favorite charity benefits from your success now and after your death. An irrevocable trust essentially locks down your assets so that legal judgments, creditors or government agencies cannot touch them. Simultaneously, an irrevocable trust provides you with peace of mind that the people you care about will be taken care of after you pass.
Some of the benefits of an irrevocable trust include the following:
- Charitable tax deduction — Placing assets into an irrevocable trust transfers ownership over the assets to the trust itself. In the event that your trustee donates some of the assets to a charity, the trust receives a tax write-off. In the event that you name charities as beneficiaries of the trust, you may receive a tax write-off against income taxes and gift or estate taxes.
- Asset protection — Contrary to popular belief, a revocable trust does not offer protection against a legal judgment. In a revocable trust, you still own the assets, and therefore, they are not protected against a lawsuit. Since an irrevocable trust is an entity separate from you, it offers excellent asset protection. For example, if a lawsuit is filed against you, your assets in your irrevocable trust are safe since the trust is a separate entity uninvolved in whatever legal dispute you face. As a result, your inheritance to your loved ones remains intact.
- Avoiding probate — Probate is the process of finalizing a will. This includes the payment of all outstanding debts and the distribution of remaining assets. There are numerous reasons to avoid probate — probate fees, public records, interference in family and financial matters by a judge, etc. Fortunately, by placing your assets in an irrevocable trust, you can bypass probate altogether.
- State tax shield — Many people make the mistake of believing that a revocable trust reduces estate taxes — it doesn’t. The functions of a revocable trust are avoiding probate, planning for disability and preserving privacy. When you place assets into an irrevocable trust, it’s the trust, and not you, that owns the assets. Upon your death, since the trust owns the property held within, it is not subject to state taxation.
Not all of the benefits described above will apply to every irrevocable trust, and each trust must be developed to meet an individual’s specific needs.
Consider the benefits of an irrevocable trust in the state of New Jersey, as discussed above. If you are contemplating creating a trust or have questions about other aspects of estate planning in Union or Hunterdon County, seek support from Alec Borenstein, Esq., a partner with the firm, by emailing firstname.lastname@example.org or calling 908-236-6457 today.