One of the reasons that individuals set up irrevocable trusts is to make sure that their wishes will be upheld once they die. While a will can help you accomplish this, it requires the involvement of the probate court. Irrevocable and other types of trusts generally do not.
In case you’re wondering what an irrevocable trust is, it’s a trust that can’t be changed by the grantor, or the person who created it. Once it’s set up, the only people who can request to make changes after it’s been put in place are the beneficiaries of it. You as the grantor no longer have rights to any of the assets that belong to the irrevocable trust once you transfer them into it.
This contrasts greatly with how revocable trust functions. With these, you as the grantor maintain full rights to all assets contained in the trust. You can terminate it at any time if you wish. This is one of the reasons that revocable trusts are more commonly set up over irrevocable ones.
Even still, there may be some cases in which it’s best for you to set up an irrevocable trust over a revocable one.
If you’re trying to minimize your estate’s tax burden, then you may benefit from setting up an irrevocable trust.
Since you no longer have control over assets that you place into an irrevocable trust, you’re no longer required to pay estate taxes on them. This means that if you have income-producing properties, you won’t have to pay taxes on any rental income that you receive. This can greatly reduce your tax burden.
Individuals also often set up irrevocable trusts as a way to limit their exposure to creditors. If you have debts when you pass away, then it’s generally your executor’s responsibility to sell off any of your assets necessary to pay those down. If all of your assets are contained within an irrevocable trust, then you won’t have to worry about that happening.
It’s important to understand that there are many types of irrevocable trusts that exist. There are charitable, life insurance and marital ones, each with their own pros and cons. If you’d like to understand more about each of these, then you should consult with an asset protection planning attorney in Bridgewater who can advise you how you can legally protect your New Jersey estate by setting up an irrevocable trust.