Friday, May 24, 2013

What Is an Irrevocable Living Trust?

When someone decides to create an irrevocable living trust, they are making a decision that means that the trust cannot be amended, modified, changed or revoked under any circumstances. Once this type of trust has been created, it generally cannot be tweaked for any reason. However, there are extenuating circumstances in which an irrevocable living trust can be changed. Let's consider under which circumstances an irrevocable living trust can be amended:

Trustee or Beneficiary Modification or Judicial Modification.

This document can be written with instructions to the Trustees or beneficiaries to allow for the terms to be modified under specific conditions, such as changes to be made to comply with changes to Federal Law. This is accomplished by judicial modification. Also, if the terms of the trust make it expensive to administer or if the trust is out of date, the trustee or beneficiaries can request that the terms be modified or completely terminated through a judicial modification.

Trust Protector Modification.

Today's estate plans utilize a Trust Protector usually someone who is a third party appointed by the Trustee, the beneficiaries or a court. The document must contain provisions allowing for the appointment of a Trust Protector. This person will examine the facts and circumstances relating to the desired changes and make a determination as to whether the change should be made. If the decision is made to make the changes, either the Trust Protector or a court of competent jurisdiction will approve the changes.

Exercise of a Power of Appointment.

Lifetime or testamentary Power of Appointment is a way in which a trustee or the beneficiaries can change the terms of the trust to benefit the current or future beneficiaries upon exercise of the power.

Disposition of Property.

The sale or disposition of all of the property owned by the trust can cause it to be terminated. For instance, if the trust owns a life insurance policy and the insured stops paying the premiums, then the policy will either immediately or eventually laps and the trust will have no asset.

Types of Irrevocable Trusts

There are two types of Irrevocable Trusts:

Irrevocable - This is also called an Inter Vivos Irrevocable Trust, created and funded by a living Grantor. Examples:

• Irrevocable Life Insurance Trusts;
• Lifetime gifting trusts such as
o Qualified Personal Residence Trusts,
o Grantor Retained Annuity Trusts (GRAT for short), and
o Spousal Lifetime Access Trusts (SLAT for short);
o Charitable Remainder and
o Charitable Lead.

Testamentary - This one is created after the death of a person. Therefore no one living has the authority to change the terms of this trust.

A person wishing to create any living trust, revocable or irrevocable should be aware of the circumstances around which these trusts are created. There a specific laws that must be followed when deciding which type of trust to create. Should someone wish to create a Charitable Remainder Trust or Charitable Lead Trust, these have even more important laws to consider. These are trusts which leave assets to charities. They can be very beneficial, depending on what the donor wishes to do.

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