When planning your estate, you have many options. With the help of an estate planning lawyer, you can craft an estate that reflects your needs, desires, and unique situation. Depending on the complexity of your estate and the value of your assets, an irrevocable trust might be a good choice. It can allow your heirs to avoid probate and it can offer some tax advantages. However, as with other options there are advantages as well as disadvantages. In advance of meeting with a qualified attorney, the following information may be helpful to you.
Supplementary Income for the Beneficiaries
As opposed to revocable trusts which can trigger certain tax obligations, an irrevocable trust will not interfere with certain benefits. For instance, if the beneficiary receives Social Security, Medicaid, or another type of government assistance, assets they inherit through an irrevocable trust will not interfere with those benefits. If the heir is a minor, the assets they inherit will not be considered income and so will have no bearing if they apply for financial aid. An estate planning lawyer can create an irrevocable trust that will not burden the heirs with additional tax obligations.
Relief from Financial Liabilities
One of the biggest advantages to an irrevocable trust is a potentially substantial tax advantage. An estate planning law can review your situation and tell you more, but for many people, once the trust is finalized and the assets are transferred, the trust maker is no longer obligated to pay taxes on those assets. In addition, any future earnings based on those assets are also not taxable. They are also protected from any bankruptcy actions if creditors should seek access to those assets.
Loss of Control Over Assets
One of the primary disadvantages of an irrevocable trust is that the trust maker immediately loses control over the trust’s assets. As a result, they will not have any legal right to make decisions about those assets. They also cannot receive any income generated from the assets. Alternatively, however, the trust maker will not owe taxes on them or be liable for any losses associated with them.
You Can’t Change Your Mind
An irrevocable trust lives up to its name in that it cannot be revoked, or changed after it’s been finalized and signed. This is the law. Even if the trust maker wants to replace the person they designated to be the trustee, they can’t. A binding court order is necessary for the irrevocable trust to be changed or ended. However, this is a difficult process and approval for this court order is very difficult. Talk to an estate planning order for more information about this.
If you pass away within three years of finalizing an irrevocable trust, the life insurance proceeds (if any) will return to your estate and subsequently be subject to taxes. Speak with an experienced professional such as the Estate Planning lawyer Memphis, TN locals trust.
If you need Medicaid within five years of finalizing an irrevocable trust, and you have placed assets into that trust, you may have to pay for nursing home costs out-of-pocket. You will be eligible for Medicaid only after repaying assets gifted to your trust.
Thanks to authors at Wiseman Bray LLC for their insight into Personal Injury Law.