WHAT IS AN IRREVOCABLE TRUST?
Irrevocable trusts are special documents used to exclude assets from a beneficiary’s ownership and control. The document used, the “trust agreement,” designates the creator of the trust, often called the “Grantor,” and the person the trust is to benefit, called the “beneficiary.” The person or entity responsible for the administration of the trust is called the “Trustee.” Excluding assets from a person’s ownership and control may be done to preserve and protect the assets from creditor’s claims, or misuse by the beneficiary. Excluding assets can be done to help qualify the beneficiary for financial assistance under government programs, or in some cases to save on estate taxes. Assets must be transferred to the trust by changing the ownership of the assets to the trust. This is called “funding” the trust, but not all assets are suitable for a trust.
While the Grantor may not revoke the trust, such trusts can be modified and even terminated under certain circumstances depending on how they are drafted. They can also be changed by Court Orders in many cases.
The Trustee will be responsible for the management and investment of the trust assets. In addition the Trustee must account to the beneficiary or their designated agent, usually on an annual basis. The Trustee’s duties are contained in the language of the trust agreement and in the Florida Statutes.
During the beneficiary’s life, the Trustee may pay income and principal to or for the benefit of the beneficiary. Care must be taken to make sure the Trustee’s powers to use the trust assets and income do not cause the assets to be treated as “owned” by the beneficiary. It takes knowledge and drafting skill to create a trust that will help a beneficiary without causing the assets to be available to creditors, or cause the beneficiary to lose access to government programs. In addition even if drafted correctly, if the Trustee exceeds their authority when paying income or principal to or for the benefit of a beneficiary, the assets can be considered available to the beneficiary and valuable protection and benefits can be lost. It is extremely important to use Trustees who are knowledgeable and experienced.
Irrevocable trusts are not required to pay the debts and claims of a beneficiary during life or after death. The Trustee will file a tax return for the trust, pay out what is left in the trust to the persons or entities named to receive what is left, and terminate the trust.
Consult your attorney to determine if an irrevocable trust meets your needs.
Authored by Stephen Connelly
Reviewed by Ailish O’Connor