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Introduction
Trusts are one of the essential tools used in estate planning. In general terms, estate planning is focused on the maximization of a given person’s estate through lawful strategies. Estate planning strategies take a wide range of forms, but the primary strategies involve tax reduction, legitimate tax avoidance, general financial planning, and others as well. In addition to value maximization, estate planning is also focused on the proper distribution of a given person’s assets; in other words, it is concerned with guaranteeing that a person’s wealth is distributed to the right people and for the right purposes. This is where trusts come into play: the primary benefit of trusts is that they ensure proper distribution to preselected beneficiaries. Certain trusts, such as irrevocable trusts, can also provide an additional tax benefit because of their status as independent tax entities.
Irrevocable vs. Revocable Trusts
Before we discuss the steps involved in establishing an irrevocable trust, let’s just briefly go over the differences between irrevocable trusts and revocable trusts. The primary difference is that irrevocable trusts cannot be unilaterally withdrawn or collapsed at the sole discretion of the trustor (or trust creator), whereas revocable trusts can be so collapsed. When someone sets up an irrevocable trust, their intention is to have the trust endure for a substantial period of time, whereas revocable trusts are often quite temporary. Moreover, revocable trusts are technically not separate entities for tax purposes, whereas irrevocable trusts are in fact regarded as separate tax entities.
Basic Steps Involved in Establishing Irrevocable Trusts
The steps involved in establishing an irrevocable trust are fortunately quite simple, and not too numerous:
✅ Identify the trustee (or trust manager)
✅ Identify the beneficiary or beneficiary
✅ Obtain a tax identification number
✅ Register the trust with the federal and local governments
Contribute assets to the trust
The steps are simple, but of course the entire process may require a considerable amount of time and effort. The reason for this is because trustors need to be very careful about whom they select to manage the trust: when you select a trustee, or trust manager, that person will have a substantial amount of power in the sense that they play a major role in the administration of the trust. You want to pick that individual with great care.
Contact the Murphy Law Firm for More Information
If you want to learn more about estate planning, or another issue, reach out to one of the leading Maryland attorneys by calling the Murphy Law Firm today by calling 240-219-8825.
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