An Irrevocable Trust Can Be Your Best Friend

By Paul E. Deloughery, Attorney at Law

Okay, here's a riddle. What is like a clone of you, but will never die, can make sure your surviving spouse and children are always taken care of, can help instill your values on your children and grandchildren (even if you die prematurely), and is not subject to your creditors or those of your surviving spouse or your children?

Answer: A well-drafted irrevocable trust.

So, let me back up and explain what I am talking about. First, what is a trust? A trust is a property interest held by one person (the trustee) at the request of another (the settlor or grantor) for the benefit of a third party (the beneficiary).

Many people are familiar with the concept of a revocable "living trust." That is a trust you can set up during your life. Living trusts are an excellent way to avoid the cost and hassle of probate because the property you transfer into the trust during your life passes directly to the trust beneficiaries after you die, without court involvement. The successor trustee--the person you appoint to handle the trust after your death--simply transfers ownership to the beneficiaries you named in the trust (or continues to hold the assets and make distributions for their benefit).

An irrevocable trust is a permanent trust. Officially, once you create it, it cannot be revoked, amended or changed in any way. Of course, that is the simple answer. A good lawyer would never draft a document without some safety mechanisms that would allow for modification in the event of changes in circumstances, tax laws, etc. In an irrevocable trust, these appear in the form of a "Trust Protector" and other modification procedures. (This will be a topic for another month.)

An irrevocable trust is commonly made for the benefit of the surviving spouse, as well as the children and grandchildren (and even great grandchildren). Because it is irrevocable (and thus cannot be changed without some difficulty), it is off limits to your surviving spouse's new spouse, the creditors of your spouse and children, and will not be lost to spendthrift, irresponsible offspring or their ex-spouses. The trust can be made discretionary, with "strings" attached, such as providing that no distributions will be made if the beneficiary (your child or grandchild) is unemployed simply because of the availability of the trust funds. Another common condition is that no benefits be paid out if the beneficiary is addicted to alcohol or drugs. This helps prevent your offspring from becoming trust fund babies and druggies. Also, with the benefit of a Statement of Wishes (which you can customize), you can encourage your descendants to follow certain family traditions (like going to a certain college, following a certain religion, or giving to a certain charity).

Pretty powerful stuff, huh? It is by customizing the language of the irrevocable trust, and the accompanying Statement of Wishes, that you can effectively create a clone of yourself that can administer your life insurance proceeds and other assets long after your life. In fact, an irrevocable trust could last as long as 100 years - helping to assist and guide multiple generations. (This concept is called dynasty planning, and is also a topic for another month.)

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Disclaimer: The information contained in this article is made available for general informational purposes only, and is not intended to constitute specific legal advice or to be a substitute for advice from qualified counsel. For that reason, you should not act or refrain from acting based on any information in this article without first obtaining advice from professional counsel qualified in the applicable subject matter and jurisdictions.