An irrevocable trust typically cannot be changed after it is created. It provides strict guidance on how assets should be handled and how ownership is defined.
There are some benefits to using an irrevocable trust, and it is important to consider them when putting your estate plan in place. Below are three benefits to consider.
Reducing estate tax
Because an irrevocable trust owns the assets and cannot be changed, it can be used to lower the value of an estate. This can be beneficial when facing estate taxes. If the value of someone’s estate reaches over the tax threshold, being proactive about transferring assets into an irrevocable trust can lower the value of their personal estate and ensure that the money is actually passed on to their family, rather than paying out a higher percentage in taxes.
Protecting assets from creditors
An irrevocable trust can also be beneficial when looking to shield assets from specific creditors. Once again, it is an issue of ownership. The trust itself owns those funds, so creditors may not be able to come after them, even when they can file a claim with the estate.
Addressing Medicaid eligibility
Those who are considering their eligibility for Medicaid benefits need to consider the value of their estate as it pertains to their means. A person may otherwise be required to spend down their assets before they would qualify for benefits. Moving those assets into an irrevocable trust helps them pass the means test without forcing them to directly spend the funds.
If you are interested in using a trust in your estate plan, carefully consider the different types of trusts you can use and the legal steps you will need to take to do so.
