Financial Uses of an Irrevocable Trust

An irrevocable trust is a tool that is commonly used in the process of estate planning. There are many different reasons that a person might potentially want to use an irrevocable trust. Here are some of the financial uses of an irrevocable trust. 

Remove Ownership

An irrevocable trust is a type of trust that cannot be altered except by the beneficiary. This is used in order to remove ownership of assets by the grantor. By doing this, you will be able to reduce your taxable estate substantially. If you wanted to eliminate your ownership interest in a business and give it to your child, you could put it into an irrevocable trust.

Eliminate Tax Liability

Another common way that irrevocable trusts are used is to eliminate future taxable liability. With other types of trusts, people will put investments into them and still receive investment income from these investments. When this happens, they will have to pay taxes on the money that is generated from the investments. With the use of an irrevocable trust, you can avoid this scenario completely. You will not be receiving any assets from the trust, and you will not have to worry about paying any kind of taxes on the returns.

What are the irrevocable trust tax implications?

If you are setting up an irrevocable trust, understanding the tax implications is important. When you put your money into an irrevocable trust, the money will technically be removed from your estate. This means that when the money is passed onto your beneficiaries when you die, they will not have to pay estate taxes or gift taxes on it. The trust will have to file a tax return and will have to pay taxes on any money that is earned from the investments in the trust. In most cases, a tax professional should be utilized when working with an irrevocable trust.

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