Trusts are estate planning tools that are used in place of or in addition to wills, for legal and financial reasons. Trusts preserve a person’s (the grantor’s) assets for their heirs or beneficiaries. These accounts are classified as revocable or irrevocable. Revocable trusts can also be converted to irrevocable. It’s not unusual for people to have both revocable and irrevocable trusts in addition to a will.
There are several reasons why a grantor might change a revocable trust to irrevocable, including advancing age, providing for a disabled family member, or for tax advantages.
Why choose a revocable vs. irrevocable trust in Illinois?
A revocable trust is set up by an individual (the grantor) who, as trustee, has control over the contents and may continue to use the assets or move things in and out of the trust. By contrast, an irrevocable trust locks assets up as soon as it’s created, so no one is allowed to spend or change the assets it contains without a court’s permission. Both are overseen by one or more trustees; the trustee for a revocable trust is usually the grantor, or person who set up the trust.
Why would someone have both a revocable and an irrevocable trust? A grantor may choose to put long-term assets like real estate into an irrevocable trust and short-term assets like stock accounts into a revocable trust. This way, their heirs are guaranteed to benefit from certain assets while the grantor still has access to funds for day-to-day expenses (and may continue to live in the home that’s been transferred to the irrevocable trust).
The benefits of a revocable trust include:
- The owner/grantor can continue to enjoy the assets of the trust during their lifetime;
- the assets contained in the trust are passed to beneficiaries more quickly and at a lower expense than when they’re left in a will, and
- the contents of a trust are kept private while a will is public.
Benefits of an Irrevocable Trust in Illinois
A grantor (or asset owner) may convert a revocable trust to an irrevocable trust with the aid of an estate attorney.
When the grantor of a revocable trust dies, their trust immediately becomes irrevocable. The job of trustee is assumed by the grantor’s successor (named in advance), and the contents of the trust are distributed according to the grantor’s wishes.
The benefits of an irrevocable trust include:
- protecting heirs from estate taxes;
- avoiding the long probate process;
- providing for disabled or minor family members;
- keeping the contents of the estate private;
- removing assets from the reach of most creditors including for long-term health care (after a legal “look back” period has elapsed), and
- the ability to decide in advance how assets should be allocated.
How to Convert a Revocable Trust to an Irrevocable Trust in Illinois
Using an expert in Illinois estate planning, an individual or couple with a revocable living trust can convert the account to irrevocable. The steps involved include:
- Reviewing all revocable trust documents with your estate planning attorney, confirming that the existing trust does not prohibit conversion.
- Getting consent from beneficiaries if necessary.
- Drafting the trust agreement and applying for a tax ID number (EIN).
- Transferring ownership of assets to the trust.
- Naming the trustee(s) and getting the acknowledgement of trust signed.
- Detailing all assets and estate plans in an Affidavit of Trust document.
- Making changes to deeds at the county recorder’s office.
- Setting up a process for the estate to pay its own taxes.
Why Consult With an Estate Planning Professional in Illinois
Knowing the state and federal laws and regulations that apply to trusts is the job of an experienced estate planning attorney. The professionals at Legacy & Life Law Firm can help you determine which form of trust best fits your assets and lifestyle, structuring it according to your wishes, including converting a revocable trust to irrevocable.