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IRREVOCABLE TRUST

An Irrevocable Trust cannot be altered amended or terminated by the person creating it. Once the assets are transferred into the Trust without retention of any kind of power over the assets, the person creating the Trust can no longer regain ownership of that asset. However, it provides certain benefits that a Revocable Trust cannot. They can be used for estate and tax considerations. The benefit of this type of trust for estate assets is that it removes all incidents of ownership.  It can be used in conjunction with qualifying for Medicaid.  Irrevocable trusts can also be useful to individuals who work in professions that may make them vulnerable to lawsuits, such as doctors or attorneys. Once property is transferred to such an Irrevocable Trust, it is owned by the trust for the benefit of the named beneficiaries. Therefore, it is safe from legal judgments and creditors, as the trust will not be a party to any lawsuit. 

The collective assets comprise the trust fund, which may consist of the following:

  • Real Estate

  • Bank Accounts (checking, savings, money market, certificates of deposit)

  • Investment and retirement accounts

  • Automobiles

  •  Boats

  •  RVs

  • Motorcycles

  • Timeshares

  • Life insurance

Types of Irrevocable trusts:

  • Asset Protection Trust

  • Special Needs Trust

  • Charitable Trust

  • Miller Trust a/k/a Qualified Income Trust

Irrevocable trusts can have many applications in planning for the preservation and distribution of an estate, including:

  • To deplete one’s property to ensure eligibility for government benefits, such as Social Security income and Medicaid (for nursing home care). Such trusts can also be used to help secure benefits and care for a special needs child by preventing disqualification of eligibility.

  • To take advantage of the estate tax exemption and remove taxable assets from the estate. Property transferred to an Irrevocable Trust does not count toward the gross value of an estate. Such trusts can be especially helpful in reducing the tax liability of very large estates.

  • To prevent beneficiaries from misusing assets, as the grantor can set conditions for distribution.

  • To gift assets the estate while still retaining the income from the assets.

  • To remove appreciable assets from the estate while still providing beneficiaries with a step-up basis in valuing the assets for tax purposes.

  • To gift a principal residence to children under more favorable tax rules.

  • To house a life insurance policy that would effectively remove the death proceeds from the estate.

Today’s Irrevocable Trusts come with many provisions that were not commonly found in older versions of these instruments. These additions allow for much greater flexibility in trust management and distribution of assets. Provisions such as decanting, which allows an existing trust to be moved into a newer trust that has more modern or advantageous provisions can ensure that the trust assets will be protected and managed effectively now and in the future. Other features that allow the trust to change its state of domicile can provide additional benefits.

IRREVOCABLE TRUST

An Irrevocable Trust cannot be altered amended or terminated by the person creating it. Once the assets are transferred into the Trust without retention of any kind of power over the assets, the person creating the Trust can no longer regain ownership of that asset. However, it provides certain benefits that a Revocable Trust cannot. They can be used for estate and tax considerations. The benefit of this type of trust for estate assets is that it removes all incidents of ownership.  It can be used in conjunction with qualifying for Medicaid.  Irrevocable trusts can also be useful to individuals who work in professions that may make them vulnerable to lawsuits, such as doctors or attorneys. Once property is transferred to such an Irrevocable Trust, it is owned by the trust for the benefit of the named beneficiaries. Therefore, it is safe from legal judgments and creditors, as the trust will not be a party to any lawsuit. 

The collective assets comprise the trust fund, which may consist of the following:

  • Real Estate

  • Bank Accounts (checking, savings, money market, certificates of deposit)

  • Investment and retirement accounts

  • Automobiles

  •  Boats

  •  RVs

  • Motorcycles

  • Timeshares

  • Life insurance

Types of Irrevocable trusts:

  • Asset Protection Trust

  • Special Needs Trust

  • Charitable Trust

  • Miller Trust a/k/a Qualified Income Trust

Irrevocable trusts can have many applications in planning for the preservation and distribution of an estate, including:

  • To deplete one’s property to ensure eligibility for government benefits, such as Social Security income and Medicaid (for nursing home care). Such trusts can also be used to help secure benefits and care for a special needs child by preventing disqualification of eligibility.

  • To take advantage of the estate tax exemption and remove taxable assets from the estate. Property transferred to an Irrevocable Trust does not count toward the gross value of an estate. Such trusts can be especially helpful in reducing the tax liability of very large estates.

  • To prevent beneficiaries from misusing assets, as the grantor can set conditions for distribution.

  • To gift assets the estate while still retaining the income from the assets.

  • To remove appreciable assets from the estate while still providing beneficiaries with a step-up basis in valuing the assets for tax purposes.

  • To gift a principal residence to children under more favorable tax rules.

  • To house a life insurance policy that would effectively remove the death proceeds from the estate.

Today’s Irrevocable Trusts come with many provisions that were not commonly found in older versions of these instruments. These additions allow for much greater flexibility in trust management and distribution of assets. Provisions such as decanting, which allows an existing trust to be moved into a newer trust that has more modern or advantageous provisions can ensure that the trust assets will be protected and managed effectively now and in the future. Other features that allow the trust to change its state of domicile can provide additional benefits.

The information on this website is provided for informational purposes only, and should not be construed as legal advice.

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