If you’re involved in the estate planning process, you may have been told that you might want to consider some type of trust arrangement to better manage your assets and accomplish certain long-term goals. For most people, a glance at both revocable and irrevocable trusts can often leave them certain that they would never consider the latter as an option for their asset management strategy. After all, very few people relish the thought of giving up effective control over any of the assets they’ve worked so hard to accumulate and grow over time. In many instances, however, an irrevocable trust could be just what you need to complete your comprehensive estate planning effort.
Why Irrevocable Trusts Are Less Popular than the Revocable Variety
The irrevocable trust shares many things in common with the revocable variety of trust. They both involve grantors establishing a trust relationship with a designated trustee who then controls the trust for the benefit of named beneficiaries. The trusts are funded in similar ways: the grantor transfers ownership of his assets to the trust, and those assets are then under the control of the trustee who manages them for the benefit of all of the beneficiaries.
They differ in important ways too. With the revocable trust, the most common strategy involves naming yourself as the trustee, while appointing another person to serve as the successor trustee. That allows you to create a trust, fund it with your assets, and still maintain control over it while you are alive. The successor trustee really has no role in the process until you die. This, of course, doesn’t really create the same type of separate entity that you achieve when you use an irrevocable trust, since the revocable trust remains under your control and is thus viewed as an extension of you in the eyes of the law. Still, people crave control over their property, and the revocable trust can provide that.
With the irrevocable trust, your named trustee exercises control and those assets really are beyond your reach. Now, you can include certain provisions that allow a trusted person to oversee certain aspects of the trust administration – providing a safeguard against trustee abuse of the authority you’ve granted. You can even sometimes include trust language that allows changes to be made after the trust goes into effect – naming different beneficiaries, removing the trustee, and so on. However, for the most part, your irrevocable trust is just what the name implies: a trust that cannot be altered or revoked by you except in certain circumstances and with great difficulty. That’s a loss of control that most people cannot image benefitting them in any way.
Irrevocable Trusts Can Benefit You
The thing is, though, that the irrevocable trust can provide a whole host of benefits that you cannot realize with your revocable trust. These benefits include important asset protections, tax benefits, Medicaid planning, and even cash flow security. Just consider:
Asset Protections
If you have a business or other interests that might leave you subject to litigation, a revocable trust probably won’t protect your assets from judgments or other creditors. Since you can control those assets, they tend to be fair game for creditors of almost any persuasion. With an irrevocable trust, your assets remain beyond those creditors’ reach, since you no longer own or control that wealth in any way. Of course, this assumes that your trust was established prior to the lawsuit or judgment in question of course.
Tax Benefits
You can avoid taxes on assets transferred into your irrevocable trust, which can be an important benefit when you are trying to minimize your tax burden. You can even achieve that benefit with a life insurance policy, provided that ownership was transferred more than three years prior to your death. The easiest way to avoid that potential pitfall, of course, is to simply have the trust purchase the policy, and then pay your trust monthly to provide the funding it needs to meet premium obligations.
Medicaid Planning
Planning for Medicaid eligibility can be complex, but an irrevocable trust can help. One of the many concerns faced by seniors who need nursing home care is the desire to protect some of their assets from nursing home costs. Since Medicaid sets very draconian income and asset limits on eligibility, you may need a way to reduce the size of your estate without simply giving everything away to family, friends, or charity. Asset transfers to your irrevocable trust can accomplish that goal.
Cash Flow Security
An irrevocable trust can be an excellent way to ensure that you always have some income coming in to help with expenses. Yes, when you transfer your wealth into this type of trust, you do lose control over their management and will have difficulty ever regaining access to the principal assets in the trust. You can, however, set up the trust to provide you continuing income throughout your life. As the assets in the trust generate income, the trust makes regular distributions of money to you. That can be an effective way to still feel as though you are benefitting from those assets as you get older.
Obviously, no single legal tool is perfect for every situation. At the same time, however, all of the available estate planning options out there today have their place within different people’s plans. If you want to make the most of your own estate planning effort, it is important that you don’t just discount the potential benefits of something like an irrevocable trust without consulting with an experienced attorney to determine whether it might be of benefit for you and your loved ones.
At Robert Kulas Attorneys at Law, our estate planning experts can help you to better recognize the potential benefits that any type of trust might provide for your comprehensive plan. It could very well be that an irrevocable trust is the ideal legal tool to help you meet your estate planning needs. Contact our office online or call us at (772) 398-0720 today to find out more about how an irrevocable trust can benefit you.
