Irrevocable Living Trusts:
A living trust also may be expressly created as
irrevocable, denying a grantor the ultimate control,
once the trust is created, over the transferred trust
assets.
As a protection against asset attachment by the
grantor's creditors, this is virtually perfect because
the grantor no longer holds title to the property nor
has ability to re-acquire it. The only possibility of
successful attack by creditors might occur if the
transfer can be proven to be fraudulent in some way.
Irrevocability is the unique feature of this type
of trust, and a court finding irrevocability will
usually shield trust assets from the grantor's
creditors. But irrevocability is also the major
disadvantage - if the grantor's circumstances change,
the trust cannot be changed to meet them.
Under the law, the income and assets of a
revocable or irrevocable trust are subject at least to
one-time state and federal death taxes at the grantor's
death. The trust property is included in the grantor's
gross estate for tax purposes.
This means the fair market value of all estate
assets above $600,000 - the federal estate tax
exemption amount - are taxed on a 1994 scale of from 37
percent up to 60 percent, the exact tax percentage
depending on the total size of the deceased's taxable
estate, payable within nine months after death. But
importantly, trusts can be arranged so that upon the
subsequent deaths of named beneficiaries or their
heirs, further death taxes are avoided, a savings for
the eventual trust beneficiaries, although this helpful
aspect is often remote in time.
When you consider the estimate that between now
and the year 2020, personal estates valued in excess of
ten trillion (with a "t") dollars
($10,000,000,000,000.00) are projected to pass to
heirs, you realize the enormity of the need to avoid
estate taxes as much as possible. We will talk more
about this in a moment.
