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What are some advantages to creating an irrevocable trust?

New Jersey residents who have made the wise decision to create an estate plan may find themselves overwhelmed with all the options available to them. Wills, trusts, powers of attorney and other documents should all be considered. This post will focus on one specific type of estate planning document: the irrevocable trust.

What is an irrevocable trust? Simply put, it is an estate planning document that, unlike revocable trusts, usually cannot be altered during the lifetime of the person who created it, who is known as "the grantor." In general, irrevocable trusts can fall into two categories. One category involves trusts that are funded while the grantor is still alive. There are many types of trusts in this category. The other category of trusts, known as testamentary irrevocable trusts, are created and funded after the grantor has passed on, per the terms of the grantor's will. However, unlike most irrevocable trusts, the terms of a testamentary irrevocable trust can be altered while the grantor is still alive.

There are a number of benefits to creating an irrevocable trust. Assets placed in such a trust are owned by the trust, not the grantor, so they have more protection from those who may seek the assets, such as a creditor. In addition, when it comes to totaling the value of the grantor's estate, assets placed in an irrevocable trust usually are not counted. This could have tax benefits for the grantor's heirs. Also, an irrevocable trust can be conditional, meaning the grantor's beneficiaries may not be able to misuse them.

In the end, it is important to keep in mind that despite these advantages, in general the grantor of an irrevocable trust relinquishes the ownership of the assets to the trust, and since the trust usually cannot be altered the grantor can't change things down the road. However, those who have a firm idea about how they want their beneficiaries to inherit their assets may want to look into the possibility of creating an irrevocable trust.

Source: The Motley Fool, "Is an Irrevocable Trust the Right Move for You?," Matthew Frankel, Aug. 21, 2016

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