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4 Situations Where It’s Wise to Get An Irrevocable Trust

What’s an irrevocable trust? It’s all in the name, a trust that stays the same once created. Once you put your assets into this type of trust, you can’t remove them; they’re stuck there. Is an irrevocable trust right for you? Let’s look at these four scenarios where it’s wise to create an Irrevocable Trust.

1. Irrevocable trusts help you protect your assets from long-term care costs

Questions

What are you going to do when you’re old and can’t take care of yourself? Do you have someone who will take care of you? Or will you go to a nursing home? More importantly, can you afford to go to a nursing home? Do you have long-term care insurance? Will you need to go on Medicaid? Maybe you don’t have answers to these questions yet, but it’s not too late for you to think about them now.

Considerations

Due to constantly changing rules and regulations surrounding Medicaid, having an unchangeable trust may be a great fit for you. You must meet certain criteria to be eligible, regarding health and finances. Since people inherently act out of self-interest, to prevent individuals from gaming the system, you are automatically ineligible for a period after giving away your assets. However, if you’re confident your children will look after you when can’t, an irrevocable trust is an excellent option for managing your assets and handing them down to your offspring.

2. To transfer your property to your children and minimize taxes you should get an irrevocable trust

Qualified Personal Residence Trust

A Qualified Personal Residence Trust is a trust that allows you to gift a house to your children at a lowered value. Rather than the mother giving her children her home directly, which isn’t the best decision for taxes, she can transfer it into a Qualified Personal Residence Trust. As a result, she would be the beneficiary for a set number of years. As the beneficiary, she would have exclusive use of the property until the period ended. At which point in time, her property would belong to her children.

Taxes

Although gifts are taxable, you save some money since Mom would have kept her rights to the property for some years. Since a formula that uses both the value of the property and the number of years Mom keeps the rights to use the property to find the taxable amount, this reduces the value. Like everything in life, this could be a risky proposition. If Mom passes away before her term expires, the full value of the property at the time of her death is taxable.

3. Irrevocable trusts enable you to qualify annual exclusion gifts to minors

One way to avoid taxes is to give set amounts of money to individuals from the trust each year. The individual must have immediate control and access to the trust to qualify for an annual exclusion gift. Parents and grandparents often give leave sums of money or funds to their minor aged children or grandchildren on one condition. They restrict their access, so they won’t be able to withdraw the funds until they mature and become young adults. If written correctly, the gifts in the trust will qualify for the annual gift tax exclusion. However, the individual gains rights to access to the funds at the ripe age of twenty-one.

4. Protect potential benefits of a disabled individual using an irrevocable trust

Individuals with disabilities usually receive help such as income and medical care from the government. The needs of the individual determine if they receive these benefits. Meaning, a person must have an income below a certain level or no assets above a specific amount. There are two situations where an irrevocable trust can protect these benefits.

First Scenario

Fortunately, when someone becomes disabled in an accident at the hands of someone else, and a large sum of money ends up in their lap, they are still eligible for an irrevocable trust. Although, the government might put a cap on the assets available in the Special Needs Trust.

Second Scenario

Parents or grandparents want to leave gifts to a child with disabilities. A trustee has access to the trust funds and can distribute them out based on his or her discretion to improve the beneficiary’s life or standard of living. These gifts don’t qualify for annual gift tax exclusion. However, this is usually not an issue since the federal estate and gift tax exemption limits are quite hight.

Irrevocable Trust Summary

In conclusion, there are many scenarios for using an irrevocable trust as everyone’s situation is unique. To determine if an irrevocable trust is a means to your ends, you have a defined objective. Get your free consultation at Jay Bianco.