Revocable & Irrevocable trusts

What is a Trust?

A trust is a legal, fiduciary arrangement among a grantor, trustee, and beneficiary. It provides for the ownership, management, and distribution of assets where the trustee holds the assets for the grantor for the benefit of a third party, called a beneficiary. The grantor gives up his or her ownership of the assets that are to be transferred to a trust and the trustee holds assets and manages them according to the conditions stipulated in a trust deed.
Creating a trust can be a good way to ensure that the assets you worked hard for are protected. Trusts preserve your assets for your loved ones or other individuals or organizations you wish to benefit, and unlike a Will, a Trust is a private document thus avoiding the often-expensive probate process. Not all trusts, however, are created equal.
There are two main types of trusts: the revocable and the irrevocable trust. Before you can decide which type of trust best suits your situation, you must first consider how much control you want or need to retain over your assets. Keep in mind that you reap fewer immediate benefits when you exercise more control over your assets. Surrendering control allows you to enjoy greater potential benefits down the line.

Irrevocable Trust

An  irrevocable trust  can offer substantial asset protection. It can also offer estate planning, tax benefits, and help one qualify for government programs that require personal asset caps, such as Medicaid.

The  grantor of an irrevocable trust  cannot directly alter it. The grantor places ownership of the assets into the trust and the trustee oversees the assets, as well as the management of the trust.

A grantor can maintain a modicum of control over the assets of an irrevocable trust through a careful wording of the trust deed. For  example, a grantor can impose specific conditions that must be met before a benefit can be paid out. It could be by the time a beneficiary reaches a certain age or achieves a particular milestone. A grantor can also stipulate for income from the trust to be used solely for an explicit purpose, such as to pay for college, start a business, or for travel. If the conditions are not met, no benefit is disbursed to the named beneficiaries

One reason people set up irrevocable trusts is to protect their assets from estate taxes. Once a grantor transfers assets to an irrevocable trust, he or she ceases to be the owner of the assets. Thus, these assets can no longer be considered when determining the value of a grantor’s estate. This makes perfect sense since the grantor no longer owns the assets – the trust does.
An irrevocable trust can also have a strong asset protection benefit. A nuisance plaintiff, or even a grantor’s legitimate creditor, cannot touch the assets held in an irrevocable trust. Again, this is simply because these assets do not belong to the grantor anymore. By divesting themselves of asset ownership, grantors can protect their assets from legal claims – predatory or otherwise.
Transferring assets to an irrevocable trust can help you qualify for certain government assistance programs with an asset limit. This would include long-term care assistance from Medicaid. However, Medicaid has a five-year look back period, so assets transferred to a trust fewer than five years before a grantor applies for government assistance are not protected. Upon clearing this five-year look back period, the assets in your irrevocable trust are protected and can be passed on to your beneficiaries instead of being spent down so you may qualify for government assistance.
From the foregoing, it is clear that a Trust is a valuable and powerful estate planning tool. Whether you choose a Revocable or Irrevocable trust will depend on your objectives, and personal financial situation.
Kindly visit our website at EvanBenjaminLawyer.com for a no-cost, initial estate planning consultation.