Irrevocable Trusts

(Rapidly Appreciating Property/Minimizing Estate Tax/Protecting Property From Litigation)

Irrevocable trusts may be utilized to avoid estate taxes and protect property from litigation.  Although an individual’s estate may be under the applicable estate tax exclusion rate, there are assets that may rapidly appreciate in the future and expose an estate to taxation.  Irrevocable trusts are typically used to remove property which has a tendency to rapidly appreciate, such as life insurance.

Irrevocable Life Insurance Trusts (ILITs) can be used to transfer millions of dollars to beneficiaries without paying any estate taxes.  Irrevocable trusts often deal with items such as life insurance, since the death benefit is often greater than its cash value during the life of the insured individual.  However, for existing life insurance plans there is a look-back period where an existing life insurance could be brought back into the estate.  Buying a new life insurance plan eliminates any look-back period but may not be practical because of costs or accrued assets in an existing plan.

Irrevocable trusts can also be used to protect property from litigation.  This is often referred to as an asset protection strategy.  Once property is transferred to an irrevocable trust, the person transferring the property no longer owns it.  Therefore, creditors cannot reach this property.  Great care must be exercised in creating such a trust because if it is not executed correctly the trust may fail.