The revocable trust may get most of the attention when trusts are debated, but that doesn’t mean that the irrevocable trust is any less important. In fact, these powerful trusts may be crucial to your estate planning needs. Whenever trusts are mentioned, the topic almost invariably turns to the revocable living trust. While there are some clear benefits that can be enjoyed when using a revocable trust, there is another kind of trust that can often be even more powerful: the irrevocable trust. Here, our Ossining asset protection lawyer will explain the benefits.
Revocable trusts are very popular
Revocable trusts are one type of trust that is often promoted online and elsewhere as the perfect way to meet almost anyone’s estate planning needs. Sometimes, the real benefits offered by revocable trusts are stressed, but there are also instances in which more questionable benefit claims are offered – like when someone asserts that a revocable trust can help an estate avoid the estate tax.
Where the revocable trust comes up short
Even with those benefits, the revocable trust can still leave much to be desired. There are some things that it just cannot do. Despite the tax advantage claims alluded to earlier, the fact is that you cannot escape any estate tax or income tax liability by using a revocable trust. The reason for that is simple and relates to the very nature of the trust. Since it can be revoked at any time or can be altered to your advantage, those assets are never truly out of your reach while you’re still alive. And because you can revoke the trust and reclaim the assets whenever it’s convenient for you, the government views them as part of your estate – which means that they get counted for tax purposes.
There’s another thing that your revocable trust cannot do, and this weakness is based on the same principle. If someone sues you or otherwise brings a creditor claim against you, that revocable trust won’t shield those assets from any judgment. Again, it all comes back to the fact that you can revoke the trust and reclaim that wealth. Basically, if you can access the assets in your trust, creditors and tax agencies can too.
How an irrevocable trust can meet your needs
Though the revocable trust provides no protection from the tax agencies or creditors, the irrevocable trust can. Remember, when you transfer asset ownership to an irrevocable trust, you’re giving that wealth to a trust that you cannot dissolve or amend. Though you can include terms in the trust to ensure that any income-generating assets continue to provide you with income, you can never reclaim ownership of those assets. They are beyond your control and your ownership forever – and the law recognizes that fact. So, what does that mean from a practical standpoint?
Irrevocable trusts and Medicaid
Irrevocable trust assets are not counted by the Medicaid program when it calculates your eligibility for benefits to pay for nursing home care. Again, there can be exceptions when you made those asset transfers within the five-year period prior to submitting your benefit application. Of course, those are just the asset protection benefits you receive from creating and funding an irrevocable trust.
Other benefits of an irrevocable trust
Like a revocable trust, the irrevocable trust avoids probate and protects your estate privacy. The irrevocable trust that you create can be used to bar heirs from directly accessing their inheritance by providing the trustee with discretion to determine when and how distributions are made. That can help to shield those assets from that heir’s creditors too. Your irrevocable trust can continue to provide you with a steady flow of income.
An irrevocable trust can be the most advantageous way to continue to fund your favorite charities and can provide tax advantages and income to you or your heirs. An irrevocable trust can be used to transfer wealth to your grandchildren. So, while it is true that you do have to give up ownership and control over your assets when you create an irrevocable trust, it’s easy to see how the power of that trust can easily make that sacrifice worthwhile. The fact is that there are many estate planning goals that can only be properly realized with these powerful tools.
If you have questions regarding irrevocable trusts or any other estate planning matters, please contact the experienced attorneys at the Law Offices of Mary A. Miller, P.C. for a consultation. You can contact us either online or by calling us at (914) 939-6565. We are here to help!
- Reasons an Estate Plan Could Be Challenged: Part 4 – Lack of Testamentary Capacity - June 2, 2020
- Reasons an Estate Plan Could Be Challenged: Part 3 – Fraud - May 29, 2020
- Getting Together with Family for the Holidays - May 26, 2020