Uses of an Irrevocable TrustUses of an Irrevocable Trust

An irrevocable trust is a type of trust that you cannot change once it has been created. They can be expensive and complex, but they do have special estate planning provisions. In this article, we will go over 3 uses of an irrevocable trust.

Qualify for Medicaid

Medicaid is a government assistance program that can help pay for long term care for low-income individuals. The issue comes for those in the middle ground. There are many who have too many assets to qualify for Medicaid, but not enough to pay for long term care. This is where an irrevocable trust comes in. You can transfer assets into an irrevocable trust that you do not have control over to spend down your assets to qualification levels. However, there is a five year look back period. You must dispose of assets five years or more before you require care to qualify. This means if you create and fund an irrevocable trust a year before you need long term care, you will not qualify for Medicaid.

Protect Assets from Creditors

When you set up an irrevocable trust you name someone else to be in control of the trust as the trustee. Then you transfer assets into the trust, leaving them in the control of the trustee. Because they are not in your control they do not count as your assets in a lawsuit. However, a court can deem that your transfer into an irrevocable trust is unlawful and reverse it, if the transfer was made for the sole purpose of defrauding creditors.

Save on Estate Taxes

In 2024 assets over $13.61 million are subject to estate taxes. However, with some maneuvering through irrevocable trusts you can help ease some of that burden. By placing assets into an irrevocable trust, you remove them and the income they generate from your taxable estate. There are a few types of trusts that can help with estate planning. These include irrevocable life insurance trusts, grantor retained annuity trust, and charitable remainder trusts.

Implementing an Irrevocable Trust

Before implementing an irrevocable trust, it is important you understand the uses of an irrevocable trust and its ramifications. You must be willing to give up control of your assets to a third party. Take your time and weigh your options before beginning the document creation process.

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