It’s not uncommon for people who’ve been told that they need a trust to immediately focus their attention on a revocable trust. In some cases, it’s just because they’re unaware that other trusts exist. In other instances, they’ve heard of irrevocable trusts but are more than a little leery about giving up total control over trust assets forever. While that concern is certainly valid, the fact is that there are times when an irrevocable trust is really the best way to accomplish certain goals. Of course, that raises an interesting question: when is an irrevocable trust the right option to meet your needs?
What is an Irrevocable Trust?
When it comes to living trusts – those trusts that are active while you’re alive – there are two main types: the revocable trust and the irrevocable trust. The former is a type of trust that can be cancelled or changed at any point while you’re still alive. The latter is a trust that cannot be changed or revoked once it goes into effect. It’s also important to note that trusts contained in a will (testamentary trusts) are all irrevocable since they are not created until after you die. In like manner, all revocable trusts become irrevocable when their creators pass away.
An irrevocable trust has all the same elements that you see with any revocable trust. There is a grantor who creates the trust and funds it using his assets. There is a trustee who is charged with managing and protecting those assets so that they can eventually benefit the grantor’s heirs. And there are named beneficiaries, who will ultimately be the recipients of the trust’s benefits. Without those elements in place, there can be no valid trust.
Why You Might Need a Trust
Of course, you still might wonder why you would ever need to give up all control over your assets in this manner? Let’s face it; that’s something that most people are simply not comfortable with, which is also why so many of us are leery about using power of attorney documents. As human beings, we have a natural instinct to want to maintain as much control over our lives as possible – and an irrevocable trust does require you to sacrifice that instinct to some extent.
However, there are some real advantages to be had when you use an irrevocable trust – and they’re not the types of benefits that you can enjoy with a standard revocable trust. As a result, there are a variety of reasons why you might find that an irrevocable trust is the best option for your estate planning needs:
- Are you looking for creditor protection? If asset protection is important to you, and you’re trying to safeguard your wealth against potential litigants or other creditors in the future, then a revocable trust isn’t enough. For legal purposes, the government still views the assets in a revocable trust as part of your estate – which makes sense, since you can technically revoke the trust and reclaim those assets at any time.
With an irrevocable trust, however, there is no question about the ownership of those assets. Since you must transfer ownership to the trust when you fund it, and that trust cannot be revoked, then those assets are viewed as being out of your reach. And if you cannot access them, then your creditors generally can’t get to them either. That means that any judgment rendered against you in the future likely won’t be able to target those assets.
- Roughly half of us can expect to find ourselves in a nursing home at some point in the future. With long-term care costs rising each year, few of us can afford to pay those costs. That leaves Medicaid as the primary payment option for millions of seniors across America. The only problem is that the Medicaid program has strict asset guidelines that determine eligibility. If you want to be sure that you’ll meet those standards, then you need to arrange your assets in a way that protects them from Medicaid’s eligibility calculations. An irrevocable trust can help you accomplish that goal.
- Do you have heirs who need to have their inheritances protected from their own poor decision-making? Perhaps you have an heir with a gambling problem, or some other bad habit that might cause him or her to waste that inheritance. An irrevocable trust can enable you to place that inheritance in a trust that his or her creditors cannot reach. You can even set it up so that the trustee has discretion about how and when those assets can be distributed.
- Are estate taxes a concern? If so, then you may want to divest yourself of a portion of your wealth now to ensure that it’s not counted as part of your estate when estate tax calculations are done when you die.
Are There Downsides?
Of course, it’s important to remember that these trusts are not for everyone. And it’s equally vital to remember that your number one reason for placing assets in an irrevocable trust should always be focused on the desire to see that wealth passed on to your beneficiaries. These other benefits are just that: advantages that you can enjoy while pursuing your primary goal of efficient asset distribution. You should always consult with an experienced estate planning attorney to make sure that this option is the best one for your specific needs.
When it comes time to choose the type of trust that will work best with your unique estate planning strategy, the experts at Frank & Kraft, Attorneys at Law have the expertise and experience you need. We’ll work with you to fully evaluate all your available options and help you weigh those choices to ensure that the trust you choose is the one that will best accomplish your goals. Throughout the process, you can rely on our years of proven client success to help you develop the ideal strategy to deal with every estate planning challenge you might encounter. To learn more about how an irrevocable trust can benefit your planning needs, call today at (317) 684-1100, or contact us at our website.