The Role of the Irrevocable Trust in Estate Planning   Tags: estate_planning, wills  

Although the traditional will is the most common legal mechanism to pass on one’s possessions, trusts are another popular estate planning device. Unlike a will, which is ambulatory and except in rare circumstances not be finalized until death, trusts can be created both inter vivos (in life) or testamentary (at death). Transfers made in life are subject to gift tax consequences, while those made at death face estate taxation. Although trusts are often used to avoid probate and for tax benefits, they are also used to provide for incapacity, to provide for wealth and asset management, or to pass assets in a gradual manner.

Trusts can be both revocable and irrevocable; however, irrevocable trusts offer superior tax advantages in estate planning. Therefore, irrevocable trusts are used instead of revocable trusts when one wants to get the assets out of one’s estate so that they are not taxed upon death even though the settlor (creator of the trust) still determined where the assets were dispersed.  

Like everything else, irrevocable trusts also have its share of disadvantages. The most severe disadvantage is that once the settlor places the trust assets in an irrevocable trust he/she can no longer has ultimate control over how the assets are dispersed. Although the settlor provides instructions for the trustee as to how the assets are to be dispersed, the settlor has no legal right to control their distribution. There are however three notable exceptions whereby a settlor who has created an irrevocable trust can still control how the trustee distributes assets. They are known as: (1) independent trustee (2) ascertainable standard and (3) administrative powers.

As soon as the settlor gives up any power to revoke, a gift is complete and the settlor has to pay gift tax at this point.

Peter Bricks is a 3L law student at Georgia State University, who will graduate in Spring 2006.   He chose this topic because he is interested in a career in estate planning. At Georgia State he has taken courses in Wills, Fiduciary Administration and Estate & Gift Tax. In his final semester at GSU, he will take the Estate Planning Seminar.

This web guide will show the current state of irrevocable trust planning law both in federal and Georgia law. Through statutory and case law as well as a variety of secondary legal sources, this guide should assist both law students and attorneys in understanding the various effects of estate planning through irrevocable trusts.

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