Many Ohio residents have considered the use of irrevocable trusts as part of a comprehensive estate plan. There are various advantages and disadvantages to these types of instruments, and people should be aware of them.
A properly constructed irrevocable trust allows its assets to be exempt from any estate taxes upon the death of the grantor. This allows those assets to be distributed to the beneficiaries at their full value, but the grantor must give relinquished all control over the assets. Traditionally, the irrevocable nature of the trust means that grantors will be unable to change most of the details of the trust after its creation.
Despite its irrevocable nature, there are some situations in which certain provisions of the trust can be changed. These can include a change in its trustee or its beneficiaries as well as a change of the state having jurisdiction over the trust. In order to make these types of changes, consent is required from the trustee and all beneficiaries. The main disadvantage of changing the terms of an irrevocable trust is that the federal estate tax advantages can be compromised in some cases. However, the Internal Revenue Service has issued a series of private letter rulings which, while having no precedential value except to the taxpayers to whom they were given, indicate that under certain circumstances the estate tax advantages will remain.
Those who are considering using an irrevocable trust as part of a comprehensive estate plan may wish to consult with an attorney who has experience in this area. As avoidance of estate taxes may not be an issue with people whose estates are already well within the exemption, the attorney may suggest other types of instruments that are suitable for the preservation and protection of a client’s estate.