Aim: Financial Blog for Members

Expert advice: Setting up an Irrevocable Trust

Sherrie Krizic, CTFA, CFP®
June 19, 2014

Question: I’d like to help my grandchildren financially, but don’t want to pay their bills. How can I give to them and be assured that the money will be used in the way I want?

Answer: If you want to make financial gifts to someone, yet still control how the money is spent, the best way is to create an Irrevocable Trust. With this arrangement, you name a trustee (other than yourself) who is responsible for managing the trust for the named beneficiary. This means you give up ownership and control of that property. The trust spells out the terms and conditions under which the trustee makes distributions to the beneficiary. Unlike a Revocable Trust, which allows for flexibility, you cannot change or revoke this type of trust. Like a Revocable Trust, however, an Irrevocable Trust should be set up with the assistance of a reputable estate planning attorney.

Why should you give up ownership of your assets? A tax advantage is one reason. Giving away assets may reduce the value of your estate and its tax liability upon death. You may also be able to make larger gifts without incurring gift tax liability. Finally, transferring assets to the beneficiary relieves you of the taxes associated with those assets. While they will shift to the recipient, there is a likelihood, as a child or grandchild, the recipient will be taxed at a lower rate, thereby reducing the family’s overall income tax burden. Irrevocable Trusts can also provide for education or other needs for minors or individuals with special needs.

An Irrevocable Trust can also be created under your will. In this scenario, you retain control and use of your assets during your lifetime; the terms and conditions for the gift take place after your death.

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