Making gifts to an irrevocable trust may be an effective way for an individual to reduce the size of his or her taxable estate. However, it also means giving up control of how assets are used, and it also means giving up the ability to change who benefits from those assets. This can be problematic if the beneficiary passes away or no longer needs money or other items that were placed in the trust.
It can also be problematic in the event that the person who put money into an irrevocable trust needs that money back in the future. However, it may be possible for an individual to make a gift to 529 education savings account without giving up control over how the money is used. An individual may be allowed to own the plan and change the beneficiary if necessary.
Another unique aspect of a 529 account is that a person can front load a gift without having to use his or her gift tax exemption. Typically, a person is allowed to gift up to $15,000 to a person or entity in a given year. With a 529 plan, an individual can make contributions for the next five years by writing a single check. Those who are married can combine their gifts, which means that they can contribute up to $150,000 without any negative tax consequences.
Creating an irrevocable trust may be ideal for those who don’t mind ceding control of their assets to another party. However, those who are seeking greater flexibility may want to consider a revocable living trust instead. This type of document may allow an individual to retain control of assets and who they go to. An attorney may be able to provide more information about the different types of trusts.