An irrevocable trust is a type of trust that you cannot dissolve or revoke. Once you create this type of trust, you cannot call the whole thing off and take back the assets.
Why would you want to take this type of risk? There are various different reasons why people decide to utilize irrevocable trusts. We will look at some of them in this blog post.
Estate Tax Efficiency
In a general sense, you would want to consider the utilization of an irrevocable trust if you would somehow benefit if the assets were no longer in your direct personal possession. This can come into play if you are exposed to the federal estate tax.
You can transfer unlimited assets to your spouse free of the federal estate tax, because there is a marital deduction. Assets that you intend to transfer to others that exceed the amount of the federal estate tax exclusion are potentially subject to the death tax.
For the rest of the 2014 calendar year, the estate tax exclusion stands at $5.34 million. Each year inflation adjustments are applied, and the adjustment for 2015 has been announced. In 2015, the estate tax exclusion will be $5.43 million.
If the value of your estate exceeds the amount of the exclusion, you may want to convey some assets into an irrevocable trust to mitigate your exposure.
Asset Protection
Some people are concerned about being sued. It is possible to protect assets if you convey them into an irrevocable asset protection trust of some kind.
Medicaid Planning
Medicaid is a government health insurance program that is only available to people who can prove that they are financially needy. This program is relevant to many senior citizens who were never in need of financial assistance, because Medicaid will pay for long-term care.
Nursing homes are extremely expensive, and most elders will someday need help with their day-to-day needs. Medicare will not pay for living assistance, so many elders who are eligible for Medicare ultimately seek Medicaid eligibility.
To qualify for Medicaid, people typically divest themselves of assets before they apply. If you wanted to get assets out of your own name so that you could qualify for Medicaid, you could potentially convey the resources into an irrevocable Medicaid trust.
Learn More About Irrevocable Trusts
We have provided some very basic information in this piece, but there is a lot more to learn about the value of irrevocable trusts.
Our firm offers free consultations, and we would be glad to assist you. At the consultation we will gain an understanding of your objectives, answer all of your questions, and help you construct the ideal estate plan.
To set up an appointment, send us a message through our contact page: Indianapolis IN Estate Planning Attorneys.
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.
- Does an Irrevocable Trust Pay Capital Gains Taxes? - January 12, 2022
- Tips to Help Seniors Avoid Holiday Scams - January 6, 2022
- How Do I Modify My Living Trust? - January 4, 2022
