Frederick J. Kramer

Attorney and Counselor at Law

Elder Law and Estate Planning

(516) 293-4747

IRREVOCABLE TRUST

The Irrevocable Trust is most commonly used to protect highly appreciated assets such as stocks and real estate since the beneficiaries of the Trust at death inherit the highly appreciated Trust assets with a date of death stepped-up basis. This simply means that if the Trust beneficiaries were to sell the stocks and real estate after death none of the pre-death gains are subject to income tax. The income tax law provides the beneficiaries with a date of death stepped-up basis. This favorable result would not have been realized had the person simply gifted the stock and real estate outright to individuals such as children. In that case the children to whom these assets were directly gifted would pay possible significant capital gain on future sale of highly appreciated assets.

The Trust is a neutral entity which shelters the assets within it, not only from future nursing home costs, but also protects the assets from children’s creditors, marital disputes, death and income taxation to children. Oftentimes children do not wish to be gifted assets directly because the income derived from those assets (i.e.: interest and dividends) become taxable to them. The Trust income is not taxable to the children but rather remains taxable to the original owners. This is because the Trust is a grantor trust under the income tax laws. The Trust does not pay a separate tax on its income. The Trustee has the authority to sell and purchase assets within the Trust. The Trust itself is not an investment but rather a legal title on a persons assets. Existing bank accounts, securities, stocks, annuities , real estate, etc. can all be re-titled in the name of the Trust. We refer to this re-titling as “funding the Trust”.

The Trust also avoids probate which means the Trustee at death has the immediate authority to distribute the Trust assets without requiring authority from the Court. There is no need for a probate proceeding. This saves time and potentially significant legal fees.

As a final note, the client can receive all the Trust’s income throughout each year. This is very important to clients who don’t want to lose too much control. It’s difficult enough divesting yourself of assets which you place under the management and control of the Trustee. The income retention (i.e.: interest and dividends) is often what the client ultimately desires. The Trustee is oftentimes also given the authority to invade Trust assets for the benefit of himself or others if necessary. This is a way to retrieve assets indirectly from the Irrevocable Trust, which can be used to somehow benefit the client.

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The information presented at this site should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.