Irrevocable Trust Disadvantages

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Irrevocable Trust Disadvantages

What is an Irrevocable Trust

An irrevocable trust is a type upthrust vehicle where it’s terms are not modifiable, amended, or terminated without the permission of the Grantor is named beneficiary and heirs. In an irrevocable Trust, the Grantor transfers ownership of their assets into the irrevocable Trust. By moving the assets, it legally removes them of the rights of ownership to the assets within the Trust.

How does an Irrevocable Trust Work

An irrevocable trust has a trustor grantor, a trustee, and a beneficiary or beneficiaries. When a grantor places assets into the Trust, it is a gift to the Trust, and that’s the grand tour can no longer revoke it. The Grantor will work with the Trustee and beneficiaries to dictate the terms, rules, and the use of the assets. An irrevocable trust has many applications in the preservation of an estate. 

Irrevocable Trust Disadvantages

 

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Disadvantages of Irrevocable Trust

When it comes to irrevocable Trust disadvantages, you will want to match it up with the Advantages of an irrevocable Trust as well. Like all things, there are disadvantages, but let’s review them to see if the advantages outweigh the disadvantages of a Trust.

Pros and Cons of Irrevocable Trust

Reviewing the discussions upon the disadvantages of an irrevocable trust, we need to look at it from the perspective of the people who are part of a Trust. The people who are part of the Trust are the following: Trustor, Trustee, Beneficiary, and Heir.

So, if one were to state the primary disadvantage of an irrevocable trust is that once the assets are added into the Trust, the Trustor/Grantor no longer has access to the estate. Now, like anything else, you can build in measures to retrieve the assets should wrongdoing, lack of funds in the estate, etc., would take place. The objective to set up an irrevocable trust, in which they are many types, is that the assets are no longer in the Trustor/Grantor’s name. So the disadvantage of an irrevocable trust is why people choose to have this type of Trust vehicle.

Now, if you have stock or a business that is achieving up and above its financial projections, you will be in a higher tax bracket. A higher tax bracket can hurt you in the long run, and it may behoove you to study what type of irrevocable Trust you can leverage to your advantage.

So again, lowering your tax liability is the advantage!  

So, the list below are some more disadvantages of an irrevocable trust:

  • Loss of Control over Assets
  • Inflexible as opposed to a Revocable Trust
  • Unforeseen circumstances
  • IRS rules state if you die within three years, assets transfer back to the estate.
  • Extra complications: If the Trust earns more than 600.00 in income in a tax year, the Trustee must file and pay federal income taxes at the Trust’s tax rate.
  • An Irrevocable Trust is a separate tax entity, so, therefore, check your state to see if you are obligated to file a gift tax return with the IRS.

Now don’t let the “perceived” cons of an irrevocable Trust persuade you not to use this type of estate planning vehicle. Consult with your estate planning attorney who practices on Irrevocable Trusts and the kind in which you need.  

What are the Beneficiary Right in California on Irrevocable Trusts

California Probate Code §16060 protects the Beneficiary rights in California on irrevocable trusts. It states the trustee has a duty to keep the beneficiaries reasonably informed of the status of the probate process, and the beneficiary can enforce their rights by filing a probate court petition.

Can an irrevocable trust ever be changed?

Now, there are special circumstances that an irrevocable trust can be changed but calls for a trust lawyer to help in the following:

  •  Everyone who is listed in the trust, i.e., beneficiaries, heirs, etc. must unanimously consent to the trust being modified or terminated. Under California Probate Code section 15404(a), if all of a trust’s settlors and beneficiaries unanimously approved amendment or termination of the trust, they can do it without court approval.
  •  If no unanimous consent from the beneficiaries, a trustee may ask the court to modify or terminate if the continuation of the trust would defeat or impair the spirit in which the trust was established. A petition to the court to modify or terminate an irrevocable trust under the “changed circumstances doctrine”.

 If you live in California, our Orange County Trust Attorney firm will assist in the needed documentation. Just one note however, if there is no unanimous decision, the probate court will have final say.

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Trustee Removal

Are you a Trustee or Beneficiary where protection of the Trustors wishes are being challenged and causing family disputes?

Develop strategies on preempting a Trust dispute and discover What You Need to Know About the Trustee Removal Process

Hess Verdon has a deep bench and knows both sides of the equation to remove or suspend a Trustee or to safeguard the Trustee from a frivolous legal process. Hess-Verdon top litigators will help you stay on track!

 

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Beneficiary is attacking me

Attacked by a beneficiary who objects to how you, a Trustee, or Administrator, is handling an estate?

Prevent Trustees from Making Some Common Mistakes. 

Duties | Delays | Choices | Distributions

Timing on each one is critical to avoid litigation

Hess-Verdon has over 30 years of dealing with Beneficiary and trustee disputes. Let us review your situation. You’ll be glad you did. Contact us for a No Charge, No-Obligation Consultation.

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Contesting a Trust

 Are You Considering Contesting a Trust or the most recent amendment? Was there a capacity issue or undue influence?

Be Careful when contesting a trust and know the elements it takes to protect the trust assets. Reserve your rights before Statute of limitations happen!

Hess-Verdon works hard to resolve Trust and Estate issues and preserve the estate by minimizing costly litigation. Contact us for a No Charge, No-Obligation Consultation.

 

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What are some examples in which an irrevocable trust has been modified and/or terminated?

First, the irrevocable trust must be drafted with certain provisions which allow for modifications under special circumstances.

Some scenarios are listed below:

  1.   When the principal has become too low to support administration.
  2.   When a change in tax laws becomes necessary.
  3.   Charity named as the beneficiary has changed its structure
  4.   And many others.

Our advice, please contact one of our Orange County Estate Planning Attorneys.  We are open to assist you with a free second opinion review of your case.

Are irrevocable trusts public record in California?

In California, if a trust does not hold real estate property, then all assets held in the name of the trust are kept private.

If however, once a record of a real estate transfer is made, all the details of the deal, i.e., the price, transfer dates, etc., become public record and are recorded with the county clerk.

Should you have any questions regarding an irrevocable trust, feel free to call Hess-Verdon & Associates.

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My Family is Suing me

Are you being sued by a family member over a Trust or Will?

From threats to harassment to emotional distress, many people’s knee-jerk reaction is to sue and has become increasingly common. 

There are many options to resolve a family dispute in court and out of court. 

With over 30 years, Hess-Verdon has handled Trust and Estate Lawsuits and dealing with family dynamics. Do not panic; Hess-Verdon is ready to help you today.

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Trustee Delaying my Inheritance

Past the reasonable “time period,” and Trustee has yet to make the required distributions?

Diagnose the stalling tactics from an uncooperative Trustee and UNCOVER Steps to Take to Get the Trustee to Distribute Your Inheritance.

Hess-Verdon, for over 30 years, has worked on both sides of the coin. Receive counsel on staying on the right side of the courts. Seeing thousands of problems facing Trustees and Beneficiaries has allowed us to assist and complete the wishes of the Trustor/Executor. Contact us for a No Charge, No-Obligation Consultation.

  

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Trustee Deadlines

Up against or even missed a deadline? Know which ones are upcoming?

Shore up your fiduciary responsibilities 

Conflict of Interest | Distribution of Funds | Upcoming deadlines

And put yourself back on track and avoid a trustee removal petition

Time is ticking, and seeking guidance from a Hess-Verdon Attorney is your attorney source to know protect your family’s legacy. Contact us for a No Charge, No-Obligation Consultation.

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Need a Second Opinion?

Are you feeling your attorney is not answering your questions? 

Up against a deadline | Going over Budget | Case Taking too Long 

These are just a few reasons why you need a second opinion.

Hess-Verdon has a deep bench experience and works with the courts. If you have questions that your attorney is not answering, or the litigation has taken unexpected twists and turns, Hess-Verdon has handled Trust and Estate Lawsuits for over 30 years. Do not panic; Hess-Verdon is ready to help you today.

 

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Jillyn Hess-Verdon

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R. Kurt Ketchum

R. Kurt Ketchum

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David Crumpton

Associate Attorney

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stacy l. Olsen

Associate Attorney

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