Irrevocable trusts are used predominantly for two purposes: tax avoidance or asset protection. Learn more about Trust Planning with Irrevocable Trusts.
The two most common taxes to avoid are income and estate taxes. While income taxes can be as high as 39 percent, current estate taxes are at 35 percent but are set to rise to 55 percent by 2013. There are many different types of trust to minimize or avoid these taxes. They include:
Each of these trusts provides different tax saving opportunities. A primary concern with any of these trusts however require the grantor (the person creating the trust) to give up control of the assets placed in the trust. The grantor is also prohibited from making changes to the trust after it is created and basically must give up his rights. While this may seem extreme, people opt to do these to avoid the alternative of having a substantial portion of their estate going to the government in taxes.
Asset protection trusts, are not as restrictive as tax planning trusts. They ensure the grantor is able to protect his assets from liabilities during his lifetime, from lawsuits, nursing homes, or other predators and creditors. Unlike tax planning trusts, asset protection trusts, can allow the grantor to retain full control of their assets and even retain the right to change the beneficiary and the timing, manner, or method of distribution. A careful balance however must be maintained to identify how much benefit the grantor wants to retain so as to avoid allowing his predators and creditors access to the same. While the grantor is often giving up some rights to their assets, they do not need to give up any right to their assets for the benefit of their family. Assets transferred to irrevocable asset protection trusts can be used to support children, grandchildren or any other family members at any time the grantor deems appropriate. The only requirement to achieve asset protection is that the grantor must give up access for him or her, up to the extent he wishes to protect it from creditors and predators. Asset protection planning has gotten much more flexible and friendly over the last ten years and many clients favor it to ensure their lifetime of assets are not lost needlessly to lawsuits, nursing homes or other predators and creditors.