Using Irrevocable Trusts to Shield Assets: What You Need to Know
If you are worried about losing the money you have because of long-term care, creditor issues, and estate taxes, an irrevocable trust is one of the best ways to plan for that. What is unique about an irrevocable trust is that you can place your property outside your own name, which would protect it. However, the downside of such a decision needs to be considered.
Understanding the issue
A trust is a document that allows someone (the grantor) to transfer their assets to a trustee for the management of these assets on behalf of the named beneficiaries.
The key point that differentiates an irrevocable trust from other types of trust is that an irrevocable trust cannot be modified or revoked by the grantor after it’s been established.
It is the inability of the grantor to change the conditions of the irrevocable trust that provides the main advantages. Since the grantor is not an owner of the assets any longer, they cannot be used for calculating anything, including eligibility for Medicaid coverage or creditor rights.
Key legal considerations
One common purpose of an irrevocable trust is that it can be used for Medicaid planning. The transfer of the assets in advance before the filing of the application ensures that they become ineligible for consideration after five years. In that case, wealth can be saved for your family members while still allowing you to qualify for Medicaid.
The second purpose of an irrevocable trust is creditor protection because, as stated above, the assets will be transferred away from one’s name. It means that creditors have no chance to claim the property, nor can any litigation proceed against them to recover the debt.
Another advantage of using irrevocable trusts is estate tax reduction. As long as one removes the asset from the taxable estate, the overall liability can be reduced. As such, irrevocable trusts provide an opportunity to control the distribution of the asset and prevent waste.
However, as stated earlier, irrevocable trusts do come at a cost. The person will lose the power to dispose of such assets as per his wishes because once the assets are in the trust, one needs to follow the terms and conditions provided in the document.
The main disadvantage is the strict regulations concerning how to create irrevocable trusts. Failure to comply with such requirements would mean that the whole exercise would prove futile, especially where Medicaid benefits are concerned.
Key takeaways
Irrevocable trusts can offer some protection against nursing home fees, creditors, and taxes; however, there are no simple solutions. The main strength of irrevocable trusts is that they transfer assets outside of your estate. But then, you have to give up control of them.
Since this instrument is very complex and carries a lot of risks, creating an irrevocable trust should be a part of your overall estate plan. Cooperation with a professional lawyer will increase the likelihood of success.
If created correctly, an irrevocable trust can become a useful financial tool that will not only allow you to secure your financial future but also give you peace of mind.
Talk to a Virginia Beach, VA, Elder Law Attorney Today
The Law Office of Angela N. Manz can help you prepare your estate for potential pitfalls down the road. Call our Virginia Beach estate planning lawyer today to schedule an appointment, and we can begin discussing your wishes immediately.