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Is That Irrevocable Trust Now Irrelevant?

November/December 2011 - Probate Law Journal of Ohio, Vol. 22 No. 2
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Estate planning has long included the use of irrevocable trusts, both created during life such as life insurance trusts, and those that are irrevocable upon death such as a marital/credit shelter trust plan. Strategies used in creating these trusts may have worked so well that living members of senior generations have less wealth than the current maximum federal transfer tax exemptions. For some, the collective family wealth has declined and having assets held in trust is no longer beneficial. Trust income tax rates may be higher than the beneficiaries'. Trustees may be unwilling, particularly in this economic environment, to make unusual, aggressive or alternative investments that the beneficiaries desire.

Some will suggest that these trusts should be modified or terminated, or that substantial discretionary distributions be made to permit beneficiaries to strategically use the higher tax exemptions and lower rates.

Others, however, will caution us to consider the remarried surviving spouse or child with creditor problems. The trust may own a family business or life insurance policy. Certain trusts were established before the enactment of the generation-skipping transfer (‘‘GST’’) tax. Many trusts resulted from leveraged gifting strategies, which would be potentially ‘‘wasted’’ if the trusts were terminated. There are potential risks and complications with modification,termination and other strategies to change an irrevocable trust.

All these issues considered, we ask is that irrevocable trust now irrelevant?


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