Irrevocable Trusts
Irrevocable Insurance Trust
If the client owns life insurance policies, and/or wishes to purchase life insurance, this trust can be used to transfer ownership of those policies into the trust (and/or to apply for the policy), thereby excluding the value from the client’s estate and from the estate of the client’s spouse at the spouse’s later death. This trust is basically similar to the A&B trusts. In the event that any of the insurance proceeds are includible in the client’s taxable estate (e.g., because of a death within three years of the transfer to the trust), a ‘contingent’ Marital Share is created to take advantage of the estate tax marital deduction. Otherwise, the insurance trust will function as a ‘Family Share’ type of trust. The other obvious distinction between this trust and the A&B trust is that is is irrevocable. Through imaginative design, however, it can be “revocable” through powers given to the client’s spouse or to other persons. For a single client, the irrevocable trust can be used to provide for the client’s children or other beneficiaries, excluding the value of the policy from the client’s estate.
In all cases, if the trust is the applicant for the insurance (so that the insured never “transfers” the policy to the trust, the three-year inclusion problem will be avoided.
“Second-to-Die” Irrevocable Insurance Trust
If the client and his spouse are insured (or wish to be insured) under a “second-to-die” (or “survivorship”) life insurance policy, a separate irrevocable trust can be used to be the owner (and applicant for new policies) in order to keep the policy out of both their estates. This trust works much like the revocable trust and other irrevocable trusts after both client and spouse are deceased.
Irrevocable Gift Giving Trust
This is a trust designed to allow the client to irrevocably give away assets to named beneficiaries, usually his children. The assets (or at least the appreciation thereon) can thereby be excluded from the client’s estate. Those assets will be invested and paid to the beneficiaries in accordance with the trust provisions. A so-called “Crummey” power is generally included so that the gifts, when made, will constitute gifts of a present interest and thereby qualify for the annual gift tax exclusion.