Irrevocable Living Trusts
There are several types of irrevocable living trusts, all with different advantages and purposes. They are designed to reduce state and federal taxes, protect property, provide protection from creditors, and protect wealth you wish to pass on to your beneficiaries.
As the name suggests, an irrevocable living trust cannot be changed by the grantor once the trust has been established. Any assets placed in the trust are no longer belong to the grantor, but rather the trust owns them. The grantor also cannot revoke the trust nor be the trustee. Once an irrevocable living trust is formed and funded, it’s permanent, though a few changes may be made under certain circumstances.
Certain irrevocable living trusts may be created to protect and preserve property, creating a barrier to creditors, protecting beneficiaries from poor choices, and meeting ownership requirements of some government benefits programs. Once property and assets are transferred to the trust, the grantor no longer owns them. Provisions can be put in place to prevent creditors of beneficiaries from going after trust property as well.
- Medicaid Planning Trusts – these need to be in place for a certain amount of time before applying for Medicaid because of eligibility rules. Usually those rules require you to use most of your assets to fund your care before you can receive benefits from the program. However, once assets are transferred to an irrevocable trust, they cannot be considered in determining eligibility because you no longer personally own them.
- Spendthrift Trusts – these are managed by a trustee to protect your gift. Some people are unable to wisely manage money or may be in too much debt. This allows you to pass on wealth with guidance.
- Special Needs Trust – these are intended to provide support for beneficiaries with special needs without disrupting income and asset qualifications affect eligibility for government benefits.
Beneficiaries & Wills
It is important to think ahead and anticipate as many modifications you might wish you could make before creating the trust. An irrevocable living trust cannot be modified under most circumstances. Choose successor beneficiaries in case the original beneficiaries pass away. Should all beneficiaries pass before the grantor, the property will return to the grantor’s estate. (Probate, creditors’ claims, and taxes will then apply.) Additionally, consider making a “pour-over” will to leave any property to the trust.
If you already have an irrevocable living trust, please contact us for a review. FSG is happy to talk about the advantages and disadvantages of trust modification or termination, what action would be needed, cost, and benefits. For more information on trust types, tax-reduction strategies, and how an irrevocable living trust may protect your wealth and accomplish your estate planning goals, set up an appointment today.
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