Irrevocable trusts are an important part of most asset protection and wealth preservation planning strategies. They are used to protect property and assets from nursing homes and other predators, and, depending on your individual situation, can end up saving you thousands of dollars.
Here, I have put together some of the basics about what you need to know about Irrevocable Trusts to better protect yourself, your family, and your hard earned assets.
Just as the name suggests, an Irrevocable Trust cannot be terminated once it is created, which is what sets it apart from a Revocable Trust. The reason it cannot be revoked is because of the many benefits afforded by the trust for protecting assets and shielding against taxes. Revocable Trusts are good for avoiding probate and allowing successor trustees to manage affairs if the grantor becomes incapacitated, while Irrevocable Trusts are mainly used for asset protection purposes.
There are actually two types of Irrevocable Trusts – Living and Testamentary. A Living Trust comes into effect and is irrevocable as soon as it is initially funded, meaning the ownership of assets changes while the grantor is still alive and stays that way after the grantor passes away. A Testamentary trust becomes irrevocable when the grantor dies, meaning the terms of the trust cannot be changed after that point. Most Revocable Trusts become Irrevocable at the time of the grantor’s passing, while other Testamentary trusts are created through the Last Will and Testament.
Different Types of Irrevocable Trusts
As noted earlier, Irrevocable Trusts are designed to save money, either by reducing taxes or protecting assets. Here are a few of the irrevocable trusts and their benefits:
- A Bypass Trust is used to significantly reduce estate taxes once the second spouse has passed away. The trust holds all the assets from the first spouse, meaning the surviving spouse does not actually own the assets. This reduces the amount of the estate for estate tax purposes.
- A “QTIP” Trust is used to delay or postpone the payment of estate taxes once the second spouse passes away.
- A Medicaid Trust or Special Needs Trust holds ownership of a person’s assets in order to make them eligible for state and/or federal benefits, either when it is time to enter a nursing home or if the benefits are in danger of being lost due to an inheritance.
There are many different types of Irrevocable Trusts available depending on what situation you’re in and what goals you’d like to accomplish. Talk to your Estate Planning and Trust Lawyer or give us a call.