What is an Irrevocable Trust
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An irrevocable trust is usually used for asset protection, estate tax planning, or to protect an heir with disabilities from losing eligibility for benefits during their lifetime. These trusts provide many of the same benefits as revocable trusts- avoiding probate, providing for management of a minor's assets, or providing guidance and direction for the management of assets, for example. The key distinction is that they cannot be undone.
This is why an irrevocable trust is a much bigger decision than a revocable trust. Depending on your circumstances, it could provide more than enough value to compensate for the risk, but you should discuss that balance with an estate planning attorney. Below are some examples of things you can accomplish with an irrevocable trust that cannot be accomplished through revocable trusts. |
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Protecting Assets from Assisted Living Costs
If you or your spouse needs long term care in the future, there are really only three ways to pay for it : (i) out of the legacy you have built for your family; (ii) through long term care insurance, if you have obtained the insurance before it is too expensive; or (iii) through Medicaid, or Masshealth.
You can only qualify for Medicaid/Masshealth, however, if you do not have assets in your countable estate. For families without sufficient assets to both pay for long term care and provide something for their loved ones, a particular kind of irrevocable trust can allow you to preserve some assets in the event you do need to seek Medicaid benefits. Read more here about asset protection trusts.
You can only qualify for Medicaid/Masshealth, however, if you do not have assets in your countable estate. For families without sufficient assets to both pay for long term care and provide something for their loved ones, a particular kind of irrevocable trust can allow you to preserve some assets in the event you do need to seek Medicaid benefits. Read more here about asset protection trusts.
Removing Assets From Your Taxable Estate
In Massachusetts, your estate will owe taxes if your "taxable estate" is worth $1 million or more. When you consider that this includes your home, life insurance proceeds, and retirement funds, many people are closer to that mark than they think.
Married couples can use a family trust strategy with revocable trusts to essentially double each spouse's exemption. If you are not married, or if you are and your combined assets are worth more than $2 million, you will need to use additional strategies if you want to reduce your estate tax burden.
One of these is gifting- you can give away money or assets without gift tax consequences up to the federal gift tax threshold (currently $16,000) per beneficiary. That means if you have three children, you can give each of them $16,000 per year without gift taxes, for a total of $48,000. If you have grandchildren, or want to increase the amount you give away by including your children's spouses, you can do that as well.
This is where an irrevocable trust comes in. Your grandchildren may be minors, or you may want to make sure assets you give to children and in-laws go to your grandchildren after their lifetimes. In that case you would need a special kind of irrevocable trust called a Crummey Trust (really). It needs to be irrevocable because the government will not credit that you gave away assets if you can still get them back. The "Crummey" name is the name for the case that recognized these particular trusts. The key feature is that the recipient needs to have and disclaim the right to directly receive the assets when you first put them into the trust. This makes the gift a "present interest" so that it is exempt from gift taxes.
Married couples can use a family trust strategy with revocable trusts to essentially double each spouse's exemption. If you are not married, or if you are and your combined assets are worth more than $2 million, you will need to use additional strategies if you want to reduce your estate tax burden.
One of these is gifting- you can give away money or assets without gift tax consequences up to the federal gift tax threshold (currently $16,000) per beneficiary. That means if you have three children, you can give each of them $16,000 per year without gift taxes, for a total of $48,000. If you have grandchildren, or want to increase the amount you give away by including your children's spouses, you can do that as well.
This is where an irrevocable trust comes in. Your grandchildren may be minors, or you may want to make sure assets you give to children and in-laws go to your grandchildren after their lifetimes. In that case you would need a special kind of irrevocable trust called a Crummey Trust (really). It needs to be irrevocable because the government will not credit that you gave away assets if you can still get them back. The "Crummey" name is the name for the case that recognized these particular trusts. The key feature is that the recipient needs to have and disclaim the right to directly receive the assets when you first put them into the trust. This makes the gift a "present interest" so that it is exempt from gift taxes.
Planning for Family Members With Special Needs
Another common use of irrevocable trusts is planning for children or other family members with special needs. These individuals may be eligible for government benefits during their lifetimes, which can be incredibly important safety nets, especially after their primary caretakers are no longer alive or able to assist them.
They can be disqualified from these benefits, however, if they have too many assets. A special needs trust will allow you to provide for their supplemental needs, with the balance if any going to other family members after they pass, without impacting their benefits eligibility. In order to be effective, however, these trusts too need to be irrevocable.
They can be disqualified from these benefits, however, if they have too many assets. A special needs trust will allow you to provide for their supplemental needs, with the balance if any going to other family members after they pass, without impacting their benefits eligibility. In order to be effective, however, these trusts too need to be irrevocable.
How Our Estate Planning Lawyers Can Help
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We are ready to help. We understand this can be a difficult issue to tackle, so we have designed our process to make it as easy as possible for you to get the plan in place that protects you and your family and accomplishes your goals. You can use the button below to schedule a free information call, or simply give us a call at 781-784-2322.
