THE SAUGUS ADVOCATE – FriDAy, AUGUST 8, 2025 Page 15 IRREVOCABLE TRUSTS T here are several reasons why one might look to a transfer to an irrevocable trust instead of an outright gift of assets to children. Below are a few of those reasons: 1. If a parent simply One of several roses that climb the pergola over her porch is David Austin’s very fragrant climber ‘Lady of Shalott.’ (Photo courtesy of Laura Eisener) GARDENS | FROM PAGE 11 weekend, a great egret (Ardea alba egretta) spent some time wading through the Saugus River near the turning basin, accompanied by Canada geese and ducks. During the summer, great egrets, great blue herons and the smaller snowy egrets are fairly frequent visitors to local ponds, marshy areas and several points along the river. Editor’s Note: Laura Eisener is a landscape design consultant who helps homeowners with landscape design, plant selection and placement of trees and shrubs, as well as perennials. She is a member of the Saugus Garden Club and offered to write a series of articles about “what’s blooming in town” shortly after the outbreak of the COVID-19 pandemic. She was inspired after seeing so many people taking up walking. BACK TO SCHOOL | FROM PAGE 8 grams, which can offer exclusive discounts and points on purchases. • Use student IDs. Some store discounts are available to students with either an “.edu” email address or a student ID. If you’re a student or you have a student in your family, ask if there are any student discounts available. • Visit school supply drives. Many communities and organizations host school supply drives where you can either donate or receive supplies. Check with local schools, community centers or nonprofits. Consider buying in bulk • Team up with other parents. Consider pooling resources with other parents to buy supplies (like paper towels, tissues, wipes, hand sanitizer) in bulk, which can be more cost-effective. • Warehouse stores. Check out warehouse clubs for bulk deals on school supplies and snacks. Shop wisely and safely online • When shopping online, be wary of ads that feature items that imply that you might want or need them based on your search history. Scammers could be trying to drive you to a different website. Take note of the ad and go to the store’s website by directly typing into the search bar. Note the webBACK TO SCHOOL | SEE PAGE 22 makes a gift of an appreciated asset to a child, for example, upon that parent’s death there is no “step-up” in cost basis equal to the fair market value of the asset as of the date of death. Whatever that person paid for the asset originally, becomes the cost basis in the hands of the children and on a subsequent sale there may very well be a significant capital gain. The asset could be appreciated real estate or stock. We refer to the cost basis tax concept where a parent simply makes an outright gift to a child as “carryover cost basis”.A properly drafted irrevocable trust will provide for the step-up in cost basis of the appreciated asset so that upon the individual’s death, the fair market value at that point in time is used to determine cost basis going forward. The trust is drafted so as to include the asset as part of the taxable estate. If the gross estate is less than $15 million for federal estate tax purposes (as of 1-1-26), there will be no federal estate tax. In Massachusetts, the exemption has now risen to $2million. So in all likelihood, there will be no federal estate tax (and possibly no Massachusetts estate tax as well) to be paid upon death and the children will get to use the fair market value at date of death for purposes of determining capital gains and losses in the future. That is certainly a lot better than using the purchase price of the asset 50 years ago as the children’s starting point. 2. Control of assets. If assets are transferred to an irrevocable trust, the Settlor/Donor of the Trust can still maintain control over the trust assets by serving as Trustee. Even if the Settlor/Donor is not the Trustee, he or she can retain the power to remove the Trustee and name a successor trustee if he or she is not happy with the way the trust is being administered. If serving as Trustee of an irrevocable trust, the Settlor/Donor would not need the consent of the children to sell real estate that is housed in the trust. He or she could sell the real estate, invest in another piece of real estate or sell the real estate and simply invest the sales proceeds in a stock, bond, or mutual fund portfolio, money market account, annuity, etc. The key is that the irrevocable Trust must be drafted properly if the Settlor/Donor of the Trust is to serve as Trustee. The Settlor/Donor cannot, under any circumstances, be entitled to receive any principal from the Trust. Only income can be distributed to the Settlor/Donor of such a Trust. 3. The irrevocable Trust has significant more safeguards in terms of protecting the trust principal. Creditors of the children would not be able to attach the assets while held in the irrevocable trust. If the assets were given to the children directly, no such protection would be provided. There are so-called “spendthrift” provisions that are designed to protect the beneficiary’s interest that is held in the irrevocable trust. The Settlor/Donor has the right under well-settled trust law to include such provisions in order to protect children against possible future creditors, spouses in a divorce proceeding or even against a bankruptcy filing. 4. The irrevocable trust will also protect a beneficiary’s own children if that beneficiary were to die prematurely. The beneficiary’s share will remain in trust for his or her own children with the trustee able to distribute income and/or principal for the children’s health, education, maintenance and support. Only at certain ages would the children be able to demand from the trustee to withdraw his or her share of the trust. If a beneficiary is incompetent, or if the beneficiary is suffering from alcoholism, drug addiction or a gambling addiction, the trustee would have discretion not to allow for distributions of principal, which would only result in the money being squandered. Only an irrevocable trust can provide for this feature. Outright gifts simply cannot. 5. Capital gains exclusion on the sale of the home. An irrevocable trust will also provide for the Internal Revenue Code Section 121 capital gain exclusion on the sale of the principal residence in the amount of $250,000 for a single taxpayer and $500,000 for a married couple. Even though the house is placed in the trust, the exclusion will still apply. This avoids the situation where the house is sold by the children who might be the remainder men on the deed subject to a life estate in the mother or father. If the children do not live in the home, no exclusion is available to them. Only the portion of the sale attributable to the value of the life estate will be afforded the capital gain exclusion. Furthermore, if the mother or father were on the verge of going into a nursing home, the sales proceeds attributable to the mother or father would have to be spent down on nursing home care. No such problem exists with an irrevocable trust. The irrevocable Trust is drafted as a grantor-type Trust thereby allowing the Settlor/Donor to take advantage of the capital gain exclusion on the sale of the principal residence. Joseph D. Cataldo is an estate planning/elder law attorney,Certified Public Accountant, Certified Financial Planner, AICPA Personal Financial Specialist and holds a masters degree in taxation.
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