There are many types of trusts, but the two most common are revocable and irrevocable. A revocable trust, sometimes referred to as a living trust, allows for assets to be transferred into a tax-sheltered and legally protected trust while the creator of the trust is still alive. Revocable trusts are flexible, allowing for property and assets to easily be transferred into and out of the trust.
Irrevocable trusts provide all of the same benefits and tax shelters that a revocable trust does, but they are far less flexible. Once an asset has been added into an irrevocable trust, it is usually stuck in the trust until it is dissolved in court.
Transferring assets out of an irrevocable trust can be highly challenging. Thus it is vital to work with an experienced estate planning attorney. If you need to transfer assets out of an irrevocable trust, contact Jackson White Law today.
Advantages of an Irrevocable Trust
There are many advantages to setting up an irrevocable trust, but tax-sheltering and probate avoidance are the most common. When it comes to taxes, irrevocable trusts are separate legal entities with their own tax ID numbers.
Due to this, individuals can reduce their taxable income by placing their property and assets in an irrevocable trust. If the trust generates any income, that income is taxable, but the taxes are not applied to your personal tax statements.
Disadvantages of an Irrevocable Trust
Once the trustor has signed an irrevocable trust, the trustee assumes administrative control over the trust’s property and assets. They alone are charged with administering and distributing the assets and funds in the trust according to the terms of the agreement. Due to this, the trustor loses their autonomy and ability to fully control the assets in the trust.
If the trustor includes provisions in their trust that allow for changes to be made, their trust can easily be amended. If the trustor leaves out specific conditions in their irrevocable trust, it becomes challenging to change the trust or transfer assets out of the trust.
How to Transfer Assets out of an Irrevocable Trust
1.Read the Trust Documents Carefully
Irrevocable trusts are notorious for being inflexible, meaning that it is extremely difficult for the Trustor or the beneficiaries to amend them. However, it is possible that when the trust was created that the Trustor included provisions that allow for either a trustee or beneficiary to access the assets in trust and transfer them out.
Be sure to read through the entirety of the irrevocable trust documents and look for such provisions. If the Trustor included provisions that specifically allow for you to access and transfer assets out of the trust, your estate planning attorney could easily assist you in doing so.
2. Talk With the Other Beneficiaries
As the Trustor of a trust, once your trust has become irrevocable, you cannot transfer assets into and out of your trust as you wish. Instead, you will need the permission of each of the beneficiaries in the trust to transfer an asset out of the trust. If all of the beneficiaries give you explicit consent, you are then allowed to transfer an asset out of your irrevocable trust.
According to A.R.S. 14-10411, “ A noncharitable irrevocable trust may be modified on consent of all of the beneficiaries if the court concludes that modification is not inconsistent with a material purpose of the trust.” This means that if the trustor and beneficiaries of the trust wish to amend or modify the assets in the trust, they may do so if they are all in agreeance and if their actions are in line with the material purpose of the trust.
3. Take Action Before the Trustor Passes Away
Once the trustor passes away, the loopholes in an irrevocable trust go away, and the assets in the trust are locked there until the trust is dissolved. When the trustor passes away, the terms of the trust become irrevocable, and no changes or amendments will be permitted to the trust.
Get Help From an Estate Planning Attorney
The rules and regulations surrounding irrevocable trusts are complicated, and amending an irrevocable trust often requires an experienced estate planning attorney’s assistance. An experienced estate planning attorney knows the ins and outs of working on irrevocable trusts, and they can assist you in amending your trust or transferring assets out.
Call Arizona Estate Attorney Dave Weed at (480)467-4325 to discuss your case today.