Seven Fast Facts About Irrevocable Trusts in Texas
If you are interested in having your assets avoid probate when you pass away, you should consider what methods you can utilize to bypass this process. One of the most commonly utilized estate planning tools to avoid probate are trusts, and the state of Texas allows people to create several different types. Kazi Law can set up a consultation for you with a will and trusts lawyer Dallas.
A trust refers to a legal structure that holds assets for its creator (or grantor) until the time of their death. Traditionally, another individual (or grantor) will be tasked with managing the trust. However, the trust’s creator also appoints individuals to inherit their assets. In addition, some trusts are revocable, which means that the trust’s creator can revise details about the trust at any time they choose. The terms of irrevocable trusts in Texas, however, are much more difficult to alter.
Many people in Texas create irrevocable trusts to provide additional protection from creditors and taxes for their assets. This article reviews some of the important details that you should consider about irrevocable trusts.
How Irrevocable Trusts are Created
To establish an irrevocable trust with a will and trusts lawyer in Dallas, a person must create a document appointing a trustee as well as a beneficiary. After you sign to trust, you can transfer any assets that you desire into the irrevocable trust. In Texas, if you are interested in transferring bank accounts to your trust, you are required to list your trust as the owner of the bank account. If you are interested in transferring either property with accompanying deeds or titles, you will be required to change what name is listed on the deed or title to reflect the trust. Consult your wills and trust attorney in Dallas at the Kazi Law Firm for more information.
The Advantages of Irrevocable Trusts
The exact reason why you decide to establish an irrevocable with a will and trusts lawyer Dallas will likely depend on various factors associated with your lifestyle. Some of the advantages that people realize by creating irrevocable trusts with a will and trusts attorney in Dallas include:
- Preserving assets for beneficiaries, which might include future generations
- Preventing beneficiaries from mishandling assets
- Protecting assets from creditors
- Providing guidance if the trust’s creator becomes incapacitated
- Reducing the amount of taxes to which assets are subject, particularly if you have a large estate
- Reducing the costs and time-intensive nature of probate
The Disadvantages of Irrevocable Trusts
The value of irrevocable trusts should be weighed against their shortcomings. Some of the most commonly cited disadvantages of irrevocable trusts with a will and trusts lawyer in Dallas include:
- After assets are moved into an irrevocable trust, the trust’s creator loses control over these assets. Generally, there is less flexibility for how assets placed in an irrevocable trust can be handled as opposed to a revocable trust.
- A person has no control to manage assets that are assigned to an irrevocable trust. Based on how the trust is established, a person might receive income from the irrevocable trust. If a person later encounters financial challenges and discovers that the trust’s income is insufficient, the individual will not be able to access any of the assets placed in the trust to sell them.
- Goals, as well as family relationships and family situations, can change due to a range of unforeseen events. After all, it is impossible to predict exactly what the future holds. If you create an irrevocable trust, remember that it will be impossible to later align the trust to better suit your future situation.
- For more information, consult a will and trust lawyer Dallas at the Kazi Law Firm.
The Purposes of Irrevocable Trusts
Irrevocable trusts have grantors, trustees, and beneficiaries. After the grantor transfers assets into the irrevocable trust, the grantor later cannot move these assets out of the trust again. Additionally, the grantor can specify particular restrictions as well as uses for assets in the trust. Irrevocable trusts notably have several uses when it comes to distributing and preserving assets and estates, which include:
- To gift a principal residence to children under more advantageous tax rules.
- To make the most of estate tax exemptions as well as remove taxable assets from the estate. Remember, assets placed in irrevocable living trusts do not count towards an estate’s value.
- To pass on assets to an estate while the trust’s creator still receives income from the assets.
- To prohibit beneficiaries who might misuse assets, the trust’s creator can establish certain conditions addressing the distribution of assets from the trust.
- To protect a life insurance policy that would remove death proceeds from an estate.
- To remove assets that would appreciate from the estate’s value while still offering beneficiaries a step-up basis with a valuation for tax advantages.
What Types of Irrevocable Trusts Can be Created?
Our will and trusts attorney in Dallas at the Kazi Law Firm have experience with a variety of types of irrevocable trusts. Some of the most popular types of irrevocable trusts that exist include:
- A charitable remainder trust often has two beneficiaries. One of these beneficiaries is often the person establishing the trust, and the other entity is a qualified charity or tax-exempt organization.
- Generation-skipping trusts are another powerful estate planning tool. A generation-skipping trust involves a trust in which a grantor’s assets are placed in a trust to be transferred to the grantor’s grandchildren.
- A parent of a special needs child can disqualify the child from receiving government benefits by accumulating savings in the wrong type of account or investment. However, a sufficiently constructed third-party special needs trust or supplemental needs trust permits a person to pass on assets to a disabled individual while allowing that individual to keep receiving public benefits.
- A person who owns a life insurance policy on his or her own life must be aware that at the time of his or her death, assets from the policy are included in the taxable estate unless certain actions are made before the individual’s death. For example, establishing an irrevocable life insurance trust and transferring ownership of the policy to the trust can remove life insurance proceeds from the estate and lower estate taxes.
The Difference Between Irrevocable and Revocable Trusts
Some critical differences exist between irrevocable and revocable. A few of the biggest differences between these two types of trusts include:
- Asset protection. Irrevocable trusts do a better job at protecting assets than revocable trusts. This is because, for revocable trusts, the person who creates the trust keeps complete control over assets placed within the trust, including the power to transfer property from the trust back to the individual whenever they decide to do so. While creditors often can touch assets placed in a revocable trust, this is often not the case when irrevocable trusts are involved.
- Modifying the trust. Another big difference between irrevocable and revocable trusts is whether the trust can be modified after it is created and executed. In the case of revocable trusts, a person often places language in the trust’s documents that provide the ability to alter, modify, or revoke the trust at a later date. With irrevocable trusts, however, the trust is much more difficult to revise after it has been signed and notarized.
- Property ownership. Another contrast between irrevocable and revocable trusts concerns who owns the property of the trust. In the case of irrevocable trusts, trust property, including bank accounts, real estate, or any other type of assets, is transferred into the trust and the trust becomes the property’s owner. In the case of revocable trusts, even though the trust assumes ownership of these assets, ownership can be revised at any time.
- Taxes. Another substantial difference between irrevocable and revocable trusts involve estate taxes. Because revocable trusts can be modified or revoked, these trusts cannot be used as a method to avoid paying estate taxes placed by the federal government. A person, however, can utilize an irrevocable trust for these purposes.
How Trusts Can Be Invalidated
Several events can invalidate an irrevocable trust, which includes:
- Competence. The law does not enforce a trust executed by a settlor who lacks the adequate mental capacity to execute the trust. Because a trust constitutes a type of contract, settlors must additionally satisfy the mental capacity required to create a contract. Not meeting these requirements might provide a basis to invalidate the trust.
- Failure of requirements. Several legal requirements must be established for the creation of a living trust. Not fulfilling any of these requirements is sufficient to make an irrevocable trust invalid. For example, the trust’s creator must intend to create a trust relationship. Additionally, the creator of the trust must transfer actual legal property to establish the trust. Furthermore, the trust must have at least one individual who will have the right to receive assets from the trust property.
- Undue influence. Even if a settlor has the required mental capacity to create a trust, courts might refuse to enforce irrevocable trusts after finding evidence that another individual exerted undue influence on the creator leading up to the trust’s establishment.
Contact a Knowledgeable Estate Planning Attorney
Deciding whether to create an irrevocable trust or another type of estate planning tool can be challenging. One of the best steps that you can take in deciding what estate planning strategies work best for you is to speak with an experienced estate planning lawyer. The Kazi Law Firm has will and trusts lawyer Dallas, ready to answer your questions and plan next steps.
Contact the Kazi Law Firm today at www.kazilawfirm.com today to schedule a consultation to discuss your estate planning goals.