What are the Duties of a Trustee for an Irrevocable Trust?

What is the Difference Between an Irrevocable Trust and a Revocable Trust?

Typically, trustees for irrevocable trusts are someone other than the person placing assets into the trust, known as the Grantor.

The main difference between an irrevocable and revocable trust is that in an irrevocable trust, the Grantor’s assets are taxed at the Grantor’s tax rate. This lower rate benefits the trust. However, in an irrevocable asset protection trust, the Grantor does not have direct access to the trust’s assets.

While this can prove difficult for the Grantor, this lack of access helps protect the assets.

A trustee for revocable trusts can be the Grantor, the key difference between these two types of trusts. The Grantor for a revocable trust can add assets, subtract assets, and move the assets around as they see fit.

What is the benefit of a revocable trust? When the Grantor passes away, the trust is rendered irrevocable in a revocable trust. The trust is passed on to the appropriate beneficiaries at this stage, bypassing probate.

However, one drawback of a revocable trust is that it is subject to scammers and creditors. Moreover, since the Grantor can easily access the trust, so can other parties.

Is It Advantageous to Have A Professional Trustee Versus A Family Member Who Acts As A Trustee For Your Estate?

The answer to this question depends on the individual, their family, and their preferences. For example, if the individual has a sibling, child, or family member who is:

• Able to handle taxes and finances professionally
• Able to be objective and handle distributions with impartiality
• Able to make time to handle the affairs of the trust and not be overwhelmed
• Wants to take on this new opportunity

In some cases, it is not possible to find someone who not only wants to take on the responsibility of handling the trust but is qualified to do so. When individuals do not have family members who qualify for the trustee position, they can look to friends or professional acquaintances.

Overall, the goal must be to find a dependable individual. Trustees take on significant responsibilities and must be up to the task.

Should Individuals Choose a Revocable Living Trust or an Irrevocable Living Trust?

We’ve noted some key differences between a revocable living trust and an irrevocable living trust, but which trust should individuals select?

Selecting the right trust is an important life decision that depends on individual circumstances. However, being familiar with these details should help individuals choose the correct type of trust.

When Managing Revocable Trusts:

• The person can make changes at any point. For example, the individual can remove beneficiaries, add beneficiaries, change asset distribution, and make other notable changes with no problems or penalties.

• The person can manage the assets alone and does not need to select a third party to become a trustee.

• Assets are not protected from creditors in revocable trusts.

• Assets are liable to estate taxes at the federal and state levels.

When Managing Irrevocable Trusts:

• Individuals who set up the trust do not have the ability to change terms as they go along. The individual cannot modify the rules or terms of the trust as time passes.

• Trustees must manage irrevocable trusts. The Grantor, therefore, cannot be in charge of asset management or distribution.

• The trustee has a fiduciary duty to the beneficiaries. Therefore, the trustee has to act in the beneficiary’s best financial interest.

• Irrevocable trusts allow trustees to shield assets from creditors, unlike revocable trusts.

• Irrevocable trusts also protect the beneficiary from estate taxes and any other taxes on the income produced by the trust’s assets.

When choosing the appropriate trust, individuals should work with an experienced civil litigation attorney to help them complete the proper documentation and fulfill all legal obligations. Typically, irrevocable trusts offer more advantages but can be complex.

Overall, a person’s trust depends on many individual factors, so conduct the proper research before selecting a trust. The type of trust an individual chooses often depends on their estate planning objectives, the size and shape of the family, the number of beneficiaries, and the overall amount of assets.

Additionally, many individuals find the choice comes down to how much access to the trust they would like to have and if they think they will want to change the number of beneficiaries, for example, in the future.