Irrevocable trust laws are complex. Fraudulent conveyance of gifted assets to an irrevocable trust are critical to Irrevocable trust planning and are discussed.

Trust law can be complicated. An irrevocable trust agreement is not an irrevocable trust agreement. What I mean is that there are no standards for excellence for an irrevocable trust and that not all irrevocable trusts are created equal. Not all irrevocable trust agreements can state that it has endured through several court trials and withstood even government agencies and still protect one’s assets. An irrevocable trust written by a novice is not identical as one written by a guru – even though BOTH are technically referred to as an irrevocable trust. When purchasing an irrevocable trust you are not just buying the trust by itself, you are buying the knowledge and expertise of the writer being able to anticipate landmines and pitfalls that will invariably arise. In most cases, you are also buying the hand-holding and consultations that result after the trust is set up. Everything from consulting on paperwork setting up bank/brokerage accounts for the irrevocable trust, to answering questions regarding property transfers into the irrevocable trust. Typically, there are 7-10 consultations by both the trustee and the grantor after the irrevocable trust is completed.

ByPass Irrevocable Trust or A B Irrevocable Trust

Even when you have an expert irrevocable trust author, you need assistance to choose the best, most flexible irrevocable trust for your situation. There are multiple types of irrevocable trusts – many have a limited use because of their specific function. One that is created on behalf of a spouse, often known as a bypass trust or an A B Trust, protects assets from federal estate tax so an heir may net out more due to lower estate taxes and no probate costs. The issue occurs when the first spouse dies, the widow will have to change all of their planning once again. Attorneys like to sell these types of irrevocable trusts because it guarantees future fees for them; the new widow, during a time of mourning and confusion, has to contact the attorney who put the irrevocable trust together to re-establish the estate planning; earning the attorney another fee.

Charitable Remainder Trust (CRT) or Charitable Remainder Annuity Trust (CRAT)

A person can realize sizeable tax advantages by establishing an often-called charitable remainder trust (CRT) or a charitable remainder annuity trust (CRAT) whereby he (the grantor) gets income during his life and the assets of the irrevocable trust benefit charity upon his death. CRTs/CRATs are very similar to charitable gift annuities (CGAs) in their benefits although there are a few flaws as compared to CGAs including: relatively high startup costs, attorney’s fees, administrative fees, ongoing tax filings and administration burdens, investment costs, and market risks and fluctuations.

Irrevocable Life Insurance Trust – Pros and Cons

Another example is an irrevocable life insurance trust, often referred to as an ILIT, is an irrevocable trust that is solely formed to allow heirs to attain one’s life insurance without a fifty percent or more estate tax, but it is a government endorsed trust and can only hold one type of asset, life insurance. It is effective, but too restrictive and inefficient in most cases.

Ultra Trust&reg Irrevocable Trust Asset Protection

There are irrevocable trust agreements, like the Ultra Trust®, that can encompass all of the benefits without the excessive problems different trust incur.

The Ultra Trust® is an Asset Protection Irrevocable Trust agreement in which the Settlor or Grantor (client), creates (settles) a Trust for the benefit of themselves and/or their heirs, and include clauses that limit access to the assets in times that a court or creditor is attempting to attain the assets through the clients in their role as beneficiaries.

Benefits of Ultra Trust® Irrevocable Trust – Tax Neutral

In general, the Ultra Trust® irrevocable trust is a intentionally defective Trust for tax purposes, and thus for tax purposes it is tax neutral. Hence, it does not increase or decrease taxes due and any income earned by the Trust is passed directly on to the Grantor through a K-1 which would flow through to the Grantor’s 1040.

Event of Duress or Jeopardy clauses – Ultra Trust® Irrevocable Trust

The basic operations of the Ultra Trust® allow the Trustee (otherwise viewed to be a manager or fiduciary) to manage the assets for the sole benefit of the Beneficiaries. The Beneficiaries attain access to the Trust Assets directly for their benefit, unless an Event of Duress or Jeopardy has occurred. Duress or Jeopardy is specifically defined in the Trust document itself and includes any action or activity that endangers the Trust assets – including a lawsuit.

Spendthrift clauses activated to protect assets, Trustee acts on behalf of Beneficiaries

In the event Duress or Jeopardy occurs, a secondary set of rules take control, and in particular the Spendthrift clauses are activated in such a way that the creditor and the courts are impeded from any access to the Trust assets. In fact, it is illegal for the trustee to act against his fiduciary duty of protecting the assets from outside forces. However, even during an Event of Duress, the clients remain the beneficiaries and may still indirectly have access to Trust assets for their continued benefit. Examples of this include the Trustee leasing a car or home and/or paying credit card bills for the beneficiary.

The net effect is that the Trust assets are permanently preserved for the Trust beneficiaries and entirely protected from unauthorized court proceedings and creditors.

That is the power and Protection in an Ultra Trust®. There is really only one vulnerability to a properly drafted and funded Ultra Trust®: Fraudulant Conveyence. How advisors address fraudulent asset transfers is what truly differentiates the good advisors from the great ones. Click here to find out more about our proven solution to Fraudulant Conveyence.

Rocco Beatrice, CPA, MST, MBA, Managing Director, Estate Street Partners, LLC.
Mr. Beatrice is an asset protection award winning trust and estate planning expert.