How Do Irrevocable Trusts Work?
Many people in Connecticut use irrevocable trusts as an estate planning tool. It is important to understand how an irrevocable trust works since the grantor of any assets in an irrevocable trust loses control of them once they are placed in the trust.
Not All Beneficiaries Can Control Assets
Trust documents are interpreted according to applicable state law. If a creditor or spouse in a divorce wants to take assets from a trust, a court will look at whether or not a beneficiary has control over the assets. If the beneficiary cannot control the assets, they cannot be reached by creditors or a spouse in a divorce.
Some courts may look at additional factors to determine whether assets in an irrevocable trust can be reached. A divorcing spouse may argue that the beneficiary’s rights to the trust mean that they should be included in the marital estate. Creditors may argue that the beneficiary’s right to demand property from the trust means that they should be included.
Irrevocable trust documents can be drafted so that the assets in the trust are protected. Allowing a beneficiary to serve as the trustee or appoint other beneficiaries increases the risk that assets could be exposed in litigation. Courts may also look at the relationship between the trustee and beneficiaries since a close relative may not be objective as a trustee.
Can An Irrevocable Trust Be a Member of an LLC?
When a grantor establishes a living trust, they name a trustee to manage the trust on behalf of beneficiaries who are specifically named. The trust possesses ownership of any of the grantor's assets, even owning an LLC. An irrevocable trust can be a member of an LLC as well as a revocable trust. The irrevocable trust is only more difficult to terminate and usually protected from creditors.
For Help With Irrevocable Trusts, Call Chipman Mazzucco Emerson LLC
An attorney with experience in estate planning may be able to advise clients about the best estate planning tools to use to accomplish their objectives. An irrevocable trust is just one of the many options available. Many people decide to write a will or place their assets in a revocable trust instead.
The estate planning tools used depend on the types of assets a grantor has and their concerns about beneficiaries. For example, a grantor who is concerned that a beneficiary will spend trust assets quickly or get divorced may choose an irrevocable trust.