Most of the time if there is real property involved and a married couple, they will initially make a revocable trust. However, once one of the spouses dies, it can become irrevocable so that the child will be ensured to get the property and the surviving spouse does not sell or bequeath the property to somebody other than the child.
Here are some types of irrevocable trusts:
- Permanent trusts. The so-called permanent trust is a trust designed for the prolonged management of permanently and irrevocably transferred assets. The trust objectives include immediate removal of the transferred property from a settlor’s estate for estate tax purposes (accomplished at the price of making an immediate gift for gift tax purposes). The trust terms are usually designed to ensure that the income from trust corpus will no longer be includable in the settlor’s taxable income for income tax purposes.
- Life insurance trusts. An irrevocable life insurance trust is typically used to remove the proceeds of life insurance from the insured’s gross estate, while making those proceeds available as a source of liquid funds for the payment of estate taxes and other obligations.
- Trusts for minors. Trusts for minors are specialized forms of permanent trusts that more narrowly focus on the specialized circumstances and requirements of minors.
- Grantor retained interest trusts. A grantor retained interest trust allows the settlor to retain an interest in trust assets for a limited period of time, with the remainder interest passing to another person.
- Charitable remainder trusts. A charitable remainder trust is designed to provide benefits to named individuals for a specified period of time, with the remainder interest passing to charity. To obtain desired tax benefits, including an income tax deduction for the gift to charity, the drafter must ensure that these trusts meet specific requirements imposed by the Internal Revenue Code.
- Charitable lead annuity trusts. A charitable lead annuity trust is designed to provide benefits to charity for a specified period of time, with the remainder interest passing to named individuals. The transfer tax benefits are similar to those of a charitable remainder trust, but there is no income tax deduction for the gift to charity.
- Special needs trusts. The principal purpose of a special needs trust is to preserve government benefits for a disabled or aged beneficiary. Although the terms of the other kinds of irrevocable trusts discussed in this book are frequently influenced by the tax laws, the terms of a special needs trust are principally controlled by the public benefit laws.
- Estate balancing trusts. If one member of a married couple is wealthy and the other has few assets, an inter vivos qualified terminable interest property (QTIP) trust can be used to provide the less wealthy spouse with a taxable estate, thereby making it possible to take advantage of that spouse’s unified credit upon his or her death. An outright gift would accomplish this, but the QTIP trust permits the grantor to retain control of the trust estate. I
- Surviving spouse created qualified domestic trust (QDOT). Generally, no estate tax deduction is allowed for transfers to a surviving spouse who is not a citizen of the United States.