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Irrevocable Trust Nevada question

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legaleyes1966

Junior Member
What is the name of your state (only U.S. law)? Nevada
i am considering setting up an irrevocable trust - here are my questions:
1) i want to put $200K in CDS in the trust, along with my personal residence valued at roughly $175K. these are my only assets. i have no judgments or liens against me, my credit score is over 800, no immediate pending problems.
What are the DOWNSIDES of the trust? Do I still receive income on the CDS, and can i switch institutions when they mature or invest them in other ways within the trust (such as buying stocks or realty) if i wish? do i still control them?
2) do i need to hand control to someone else?
3) do i need to name someone else to receive all the income and benefits, or
can it be me?
4) what happens when i die, can i name a beneficiary to receive it all?
5) are the trust earnings MINE, or do they have to stay in the trust?
Is the interest still taxable to me?
6) MOST IMPORTANT: are all the trust assets protected from any future judgments against ME?
7) is there a website i can go to that spells out all these fine terms?
8) what should it cost me to set this up using an attorney, and can anyone suggest one??

MANY thanks for any answers.What is the name of your state (only U.S. law)?
 


Kiawah

Senior Member
Will give you a non-legal opinion, but I've created and have irrevocable trusts for my kids so have some experience.

If your trust is 'irrevocable', then once you set up the trust, you hand over control to the trustee (and their successors) whom you name in the document. Other than funding the trust initially and from time to time if you want, you are now out of the picture. The trust gets it's own federal tax id, and federal and state income tax are paid on that thru estate income tax forms. These are done by your trustee, who hires whomever they need to get the job done. You effectively 'gift' money to the trust, so if you give more than the annual allowable gift you have to report it on your own federal tax form (no financial impact, just reduces the total amount you can pass on tax free at your death).

The income, capital gains, etc belong to the trust, you can't have any of that. They are either held in the trust, or distributed to the beneficiaries that you designated when you created the trust, based on the wording you wrote initially, and by the trustee if you gave him discretionary powers. For instance, my kids aren't allowed to receive any disbursements until they are 25, and then it's only a limited amount until still later years in their lifetime. All that language was custom language for my specific trusts and what my goals were in setting up the irrevocable trusts.

Think of the trust as an investment 'bucket'. Everything in the bucket is titled as belonging to the trust, and is managed by the trustee. The bucket can have all kinds of things in it like stocks, bonds, cash, etc. Asset accounts can be at different investment firms, but it's just much easier to manage if everything is more consolidated. Your trustee makes buy and sell decisions. Stocks sold owned by the trust, stays in a cash account titled as the trust. Purchases from that cash account of a CD, is then titled as belonging to the trust. He can buy and sell as you have given him authority to do so in the trust document.

If you die at any time, nothing unique happens because you already gave the money away to the trust, and you aren't in the picture any more.

Once you gift away the money/assets, you don't own the cash any more so they are protected from that standpoint.

Your thought process seemed to be that you would still have control of the assets and can receive the income and you would put ALL of your assets into the irrevocable trust. That's not the case. You give away what you don't need or want anymore, because you'll never see it again.

The downside......get it RIGHT when you set it up, because you can't change it. Also, if I'm not mistaken the tax rates can get higher on income (on a lot of income in the trust if the trust is large) than if held yourself. The income tax however starts out lower, probably compared to your personal tax rate. If you focus investments on long term capital gains instead of income (stock appreciation vs. CD interest), you can protect a lot of money. You can fund it with a substantial gift initially, or just make annual contributions as desired. Another downside, is the cost basis of the assets when finally distributed is what you originally put in. There is no 'step up' basis on your death. If the assets are in there for 30 of 50 years, and your estate is large, it's not going to matter much as the taxman is going to get you one way or the other. An upside, is that all of the appreciation of the assets is out of your estate, and is part of the trust.

Be sure to write language which designates what happens to the trust should the primary beneficiary die before the assets are distributed, as well as when the trust ends.

There is a start up cost associated with irrevocable trust (lawyer to create the document), and small on-going annual workload (investment decisions, estimated and annual taxes), and if it is a Crummey type trust then you need Crummey letters when assets are added to the trust, etc. It can obviously be a critical tool as part of your estate planning and asset protection strategies.


'Revocable' trusts on the other hand, can be 'revoked' by you at any time, does not carry a unique tax id number, and the income flows to your social security number.



I'm sure the lawyers will correct as need be, but this is a simple down and dirty layman's view. I don't know what it would cost nowadays to create one, I'd suspect 1-2K might be a ballpark estimate depending upon the complexity of what you were doing, but that might be low.
 
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