An irrevocable trust offers flexibility for when you want to leave assets to children or a spouse. The legal document is created to provide specific instructions for inheritances and beneficiaries. Once completed, however, the terms typically can’t be modified or revoked, which is why you should work with an accountant to determine the best path forward. Here are a few of the tax benefits provided by an irrevocable trust.

3 Tax Perks That Irrevocable Trusts Offer

1. May Eliminate Estate Tax

After a person dies, taxes must be paid on their estate before any assets are distributed to beneficiaries. This estate tax is assessed on the total estate’s value beyond a minimum exemption limit established by the IRS. If your estate exceeds this exemption, you typically won’t have to pay estate taxes if your assets were placed in an irrevocable trust. 

2. Personal Income Not Taxed

If there are assets in your irrevocable trust that earn income, the IRS won’t assess taxes on the earnings. Instead, the income is considered trust income. An accountant can talk to you about how the amount of income in the trust can put you in a lower tax bracket, which could reduce taxes owed. 

3. Can Lower Tax Liability

Because an irrevocable trust can’t be modified in most circumstances, your assets are protected thanks to ownership rights. Trust owners aren’t permitted to remove taxable assets from their estate. If your estate is large, your tax liabilities may be lower because of this stipulation. Over time, this strategic estate planning can offer significant tax-saving benefits. 

Establishing an irrevocable trust offers several advantages. Bergamo Tax & Financial Services in Waterbury, CT, can provide independent and professional guidance on the legal document’s tax benefits. For more than 25 years, this agency has served residents throughout Middlebury, Waterbury, and Litchfield. The team of accountants and enrolled agents have extensive knowledge and experience with estate planning taxes. If you want to talk to a professional about an irrevocable trust, call (860) 274-1655 to schedule an appointment. Check out the accounting firm’s complete service lineup online.