An irrevocable trust (different from an irrevocable life insurance trust) which is an arrangement in which the grantor (for exampe, Michael Jackson) departs with ownership and control of property. Usually this involves a gift of the property to the trust. The trust then stands as a separate taxable entity and pays tax on its accumulated income. The trust is usually funded with “after-tax” dollars through a gift. This is would have been an awesome tool for the beneficiaries. As Michael’s estate continues to increase due to the fans buying cd’s and downloads from Apples iTunes store, the trust will continue to accumulate income. If an irrevocable trust is set up correctly, the trust can avoid probate costs and fees, and estate taxes on the insurance proceeds paid to the trust upon the grantor’s death. In turn the beneficiary saves lots of money.
Irrevocable trusts are useful in providing children, especially those over age 14, with a fund for education or other specific planning purposes. Again, this may be fine. But always be cautious because “irrevocable” means no turning back. Today, you may be in love with that special someone and you want to set that person up with an appropriate financial future, and that special someone makes you angry, you can not change your mind. You are stuck with the idea of that person, whom you don’t love anymore, having your money and your property!
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