Is a GST Trust Revocable or Irrevocable?
Estate planning is making a plan for your assets after you die. It can be a confusing time because there are so many options, laws, and regulations.
One choice that is offered in Nevada is the trust. A trust is a fiduciary arrangement that names a trustee to hold and manage your assets on behalf of your beneficiaries. In Nevada, it is possible to design a trust that can help protect future generations in your family and make sure that they are taken care of financially.
What types of trusts are there?
Nevada is well-known for being a state that is friendly to those who want good asset protection, including its options for trusts.
One main benefit of a trust is it allows you to avoid probate.
Probate is a court-monitored process that determines several things including the validity of a will, what property should be transferred, what creditors need to be paid, and what to do with leftover assets. It can be a time consuming and expensive process.
There are several types of trusts that are available in Nevada. One is the asset protection trust. This is a trust that is often created to protect a beneficiary from negative actions like divorce, transfer taxes, or bankruptcy.
A living trust is one that is set up to designate someone as a trustee for an estate. The individual setting up the trust can be the trustee of their own living trust, and they would keep full control over their assets while they are alive.
Another option is a charitable trust. This is set up in the name of an organization, usually a non-profit or private foundation, and it helps direct and protect all assets. A special needs trust is also known as a supplemental needs trust. It assists with needs associated with mental, behavioral, or physical disabilities.
A directed trust allows an appointed trustee to work with corporate trustees to make decisions on behalf of the trust.
Finally, a GST trust, also known as a legacy or dynasty trust, is a long-lasting estate planning tool that is designed to protect several generations.
What is a GST trust?
As mentioned above, a GST trust is created to hold assets for multiple generations. GST stands for generation-skipping-transfer.
There are several reasons that a GST trust may be advantageous including reducing or eliminating certain types of taxes like an inheritance tax, estate tax, distribution tax, or any other possible future tax. While the assets may be taxed by federal gift and estate tax laws, a GST trust ensures that they won’t be taxed again at the estate level if future generations benefit from the assets you gifted in the trust.
In Nevada, assets in a GST trust are protected for up to 365 years. This is a benefit because it means that the assets will not be double-taxed for future generations for that amount of time. Both international and domestic families can establish these trusts in the state.
Beneficiaries of the GST trust can use all of the assets and property in the trust without the risk of losing the assets to creditors or other intervening factors like death or divorce.
It is recommended to hire an independent corporate trustee to help administer a GST trust. A corporate trustee is a third-party that is appointed to help with managing assets, filing tax returns, and keeping records. Due to the nature of the length of a GST trust, hiring a company to act as a trustee will ensure that the assets are protected for future generations.
Is a GST trust revocable or irrevocable?
There is one major difference that divides all the trust options in Nevada. This is whether the trust is revocable or irrevocable.
In the simplest terms, a trust is revocable if it can be changed or canceled. The most common form of a revocable trust is the living trust.
As long as the individual who created the initial trust is still alive, they can make changes to the trust including who the trustee and beneficiaries are, what assets are included, and the terms of the trust. They can also cancel the trust completely and make it invalid.
An irrevocable trust is one that is hard to change or withdraw. Once the trust is created, it will be difficult to change any of the terms or designated individuals like trustees or beneficiaries.
However, unlike some states, Nevada does allow for some modifications or decanting. To modify a trust, the individual will need to obtain a non-judicial settlement or a judicial reformation. Decanting is the process of moving all assets from one trust to another. The new trust usually has different provisions than the previous one.
The GST trust is irrevocable. This means that once it is formed, the grantor of the trust will have little to no control over the assets in the trust.
However, during the time of the creation of the trust, the grantor has complete control over the specifics over how the trust will be managed including who the beneficiaries are, what level of control the trustee has, and how distributions will be made.
Why make a GST trust?
As mentioned above, the main reason for making a GST trust is to skip the probate process and minimize taxes on future generations. It is a beneficial option for individuals with wealth and for those that want to protect what assets they have to ensure that their children and other heirs are taken care of financially.
The assets in the trust are also protected from future beneficiaries’ debts. This means that creditors for your grandchildren cannot access the trust to pay off their credit card or student debt.
GST trusts are also unique in that they allow the original grantor to determine how the assets will be distributed in the future. They can have limitations, for example, a beneficiary may only access the trust if they reach a certain age and milestone like staying sober, maintaining a certain GPA, or graduating college.
If these milestones are not met, the GST trust can hold the assets and not distribute them to the beneficiary. This allows the original grantor control over future generations that have not even been born yet.
Help with Estate Tax Planning
If you need expert advice on estate tax planning living trusts, schedule a free consultation with our attorneys in Las Vegas.