Question 1

Should I put my house in an irrevocable trust?

Accepted Answer

It really depends on your situation and goals. Irrevocable trusts can offer significant tax advantages, but they require you to relinquish control of your assets.

If you’re considering an irrevocable trust, talk to a qualified estate planning attorney who can help you weigh the pros and cons of placing your house in an irrevocable trust.

Question 2

Who can create an irrevocable trust?

Accepted Answer

Anyone can set up an irrevocable trust, provided they have the mental capacity to understand the consequences of their actions.

The standard that’s typically employed when it comes to trusts is contractual capacity.

Contractual capacity means that an individual has the wherewithal to enter into a contract and understands the implications of doing so.

People who can’t meet the standard of contractual capacity include:

Minors
Mentally challenged persons
Persons under the influence of drugs/alcohol
Incarcerated persons

The purpose of using contractual capacity as a standard when establishing a trust is to protect vulnerable people from being coerced into signing away their assets.

Question 3

Who can be the trustee in an irrevocable trust?

Accepted Answer

The trustee can be an individual person or a corporation. Typically, a corporate trustee is a professional trust service that will charge a fee.

The trustee should be someone whom you really do trust because they’ll have significant access to your assets.

As a general rule, a good trustee will be financially responsible and have the ability to manage investments prudently.

Friends and family members can be appointed as trustees, but it can get pretty messy having cousin Bob in such a powerful position.

A friend or family member may have relationships with the beneficiaries or a personal dispute with you, the settlor, which could easily cloud their judgment.

Question 4

Who pays the mortgage in an irrevocable trust?

Accepted Answer

You can’t put your house into an irrevocable trust if you still have a mortgage on it.

However, a house with a mortgage can still be placed in a revocable trust and the debt will remain in your name.

In a situation where your trust becomes irrevocable at the time of your death, the remaining mortgage payments would have to be paid by the trust.

Question 5

Who pays the property tax in an irrevocable trust?

Accepted Answer

Typically, the beneficiaries of the trust itself will be responsible for paying property taxes. It depends on the terms laid out in the trust agreement.

Whichever party pays the property taxes can claim a property tax deduction on their tax return, but the deduction cannot be claimed by both parties.

Schedule K-1 can be used to pass property taxes through to a beneficiary so that they can claim property tax deductions on their personal tax return.

Andrew Whytock

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