Lawyers Who Care.
We offer Concierge Legal Services.
We come to you!

What is the difference between a “Living Trust” (Revocable Trust) and an Irrevocable RemainderTrust?

Posted on 9th May, by Will Torchia in Contracts. No Comments

Any property deeded into a Living Trust does not leave the estate of the Trustee, because he maintains, according to the IRS, an “incident of ownership,” i.e., he can deed any of the property in the trust out of the trust at any time during his lifetime. Thus he still maintains an “incident (actual form) of ownership” in the property. Therefore, the property in a Living Trust never ” leaves the estate” of the Trustee and remains part of the “value” of the Trustee’s estate for Inheritance Tax purposes.

On the other hand, an Irrevocable Remainder Trust has the advantage of the property deeded into the trust actually “leaving the estate of the Trustee,” i.e., no longer remains part of the value of the Trustee’s estate for Inheritance Tax purposes, if, according to IRS rules, the Trustee lives for three years after the property is deeded into the Irrevocable Trust.

Example: Mr. and Mrs. Smith want to give their house to their children and want its value to “leave” their estate for Inheritance Tax purposes. Mr. and Mrs. Smith are in good health and it is more probable than not that they will live for the next three years. The result is that the house, the Remainder of the trust, will pass to the children without the estate of Mr. and Mrs. Smith having to pay Inheritance Tax on its value. Thus the gift of the house can pass tax-free to the children.

The information provided only if it is in conformity with current laws or regulations.



Leave a Reply