The Tax Cuts and Jobs Act (TCJA) increased the estate-tax exclusion rate. The rates increased from approximately $5.5 million to $11.4 million per person to or $22.8 million for a married couple. As a result, it is wise to consider putting certain estate planning tools into effect now to take advantage of these rates.
One tool high net worth families may want to consider to make the most of these savings: an irrevocable trust.
Is an irrevocable trust too rigid?
One of the distinguishing factors of an irrevocable trust is the fact the creator cannot revoke, or change, the trust once it is established. But how strict is this rule? It turns out, it may be more flexible than many realize.
Irrevocable trusts generally do not allow the creator to change the terms. However, there are situations the beneficiaries may be able to change these terms. State law often refers to this process as decanting. It basically involves the beneficiary decanting the terms of the trust into a new trust. The beneficiaries will choose the terms they want to keep and include those within the new trust.
Are there any concerns with changing the terms of the trust?
Yes. First, it is important to note the process itself is not an easy one. State law will guide the rules on changing the terms of the trust. In some states, the decanting process is allowed. In others, the trustees will need to request permission to change the terms of the trust from the courts.
Another important consideration: change the language of the trust carefully or else the funds could become subject to tax obligations during the transfer. Those who wish to make such changes or put together an irrevocable trust to meet their estate planning needs are wise to discuss their options with an attorney experienced in the laws that govern trusts.