Irrevocable Trusts make up the backbone of most solid asset protection planning strategies. These trusts can help protect property and financial assets if you should end up in a nursing home, and depending on your individual situation, can also help by saving you a significant amount of money. Here is everything you should know if you’re considering an Irrevocable Trust as part of your asset protection strategy:
Irrevocable and Revocable Trusts
Irrevocable Trusts cannot be terminated once they are created, which is what makes these trusts different from Revocable Trusts. The trust cannot be revoked because it offers many benefits afforded for protecting assets and shielding against taxes. A Revocable Trust can help avoid probate and allow a successor trustee to manage affairs if the grantor becomes incapacitated, while Irrevocable Trusts are mainly used for asset protection purposes.
Living vs Testamentary Trusts
There are two different types of Irrevocable Trusts – Living and Testamentary. A Living Irrevocable Trust comes into effect as soon as it is initially funded, meaning the ownership of assets passes from the grantor to the trust while the grantor is still alive and stays that way after the grantor passes away. A Testamentary trust comes into existence only after the grantor passes away and is irrevocable upon death. Once this happens, terms of the trust cannot be changed. Most Revocable Trusts become Irrevocable at the time of the grantor’s passing, while most Testamentary trusts are created as part of a Last Will and Testament.
Other Different Types of Irrevocable Trusts
Irrevocable Trusts are created to save money, either by reducing tax burdens or protecting assets from financial predators. There are several different types of Irrevocable Trusts available depending on your individual situation and the goals you wish to accomplish. Below are some of the different types of Irrevocable Trusts, along with their benefits:
- A Bypass Trust significantly reduces estate taxes once both spouses have passed away. Assets that pass to spouses typically do not incur an estate tax as there is an unlimited marital deduction between spouses. The trust holds all the assets from the first spouse after death, allowing us to use the estate tax exemption of the deceased spouse to the fullest thereby minimizing taxes when the second spouse passes. The surviving spouse does not actually own the assets.
- A QTIP Trust delays the payment of estate taxes once the second spouse passes away.
- Medicaid and Special Needs Trusts hold ownership of a person’s assets and property, so they can stay eligible for Federal and state benefits. These trusts are typically used when a person enters a nursing home or if an inheritance might threaten the loss of the benefits.
If you would like to get more information on planning with Irrevocable Trusts, or if you’d like to have your current asset protection plan reviewed to make sure it still fits your needs, please set up an appointment at our San Fernando Valley estate and elder law office by calling (818) 905-6088.