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What is an Irrevocable Trust

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.

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.

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.

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.

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  • Home
  • About
    • Slnlaw Offices
    • Fees and Payment
    • Privacy Policy
    • Publications and Interviews
  • Attorneys
    • Emily Smith-Lee >
      • 2018 Lawyer of the Year
    • Jenna Ordway
    • Rebecca Rogers
    • Andrew Silvia
    • Elijah Bresley
  • Reviews
  • Contact
  • Blog
  • Employment Law Solutions
    • Employment Law MA
    • Discrimination in the Workplace
    • Employment Termination
    • Sexual Harassment at Work >
      • Sexual Harassment in a Small Business
      • Sexual Harassment and Non Disclosure Agreements
      • Sexual Harassment and Remote Work
    • Wage and Hour Laws
    • Independent Contractor Law
    • Non Compete Agreements >
      • Are non competes enforceable
      • Massachusetts Non Compete Act
      • Pre 2018 Massachusetts Non Competes
    • Equal Pay Act
  • Estate Planning
    • Massachusetts Wills and Trusts
    • Why You Need an Estate Plan
    • Massachusetts Estate Tax
    • Inheritance Tax
    • How to Make an Estate Plan
  • Business Law Solutions
    • Small Business Law
    • Business Contract Basics
    • Civil Suit Defense
    • Legal Issues for Start Ups
    • Trademark Basics
    • How to Incorporate
    • Sale of Business
  • Legal FAQs
    • Estate Planning FAQs
    • Probate FAQs
    • Small Business FAQs
    • Wage Act FAQs
    • Commission Pay FAQs
    • Overtime FAQs
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    • Non Compete FAQs
    • Employment Discrimination FAQs
    • Employment Termination FAQs
    • Severance Package FAQs
    • Medical Leave FAQs
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