In creating a trust for the benefit of others, a primary issue to address is whether you would like to make the trust revocable or irrevocable. As the names suggest, a revocable trust is one that you, as the creator, have the right to revoke at any point, meaning you can transfer whatever property is in the trust back to yourself. An irrevocable trust, on the other hand, is generally revocable only by unanimous consent of the beneficiaries or through some other mechanism outside of the control of the trust’s creator. So why would anyone ever create an irrevocable trust over a revocable trust? There are several reasons.
The Trust Assets Will Be Protected From Creditors
When you create an irrevocable trust, you are transferring the assets to the trust in such a way that the law will no longer view you as the true owner of the assets, as you can no longer reclaim those assets as you could in a revocable trust. Because of this, when creditors seek your assets, they generally cannot touch assets in an irrevocable trust, as they are no longer yours. This is not the case with a revocable trust.
An Irrevocable Trust Can Provide Tax Benefits
Similarly, assets in a revocable trust may be considered part of your estate when you die, and thus could be subject to federal and state estate taxes. But assets in an irrevocable trust are not considered part of your estate, and thus would not be subject to the estate tax.
That said, careful attention should be given to gift tax issues, which are linked with estate tax matters. Working with an experienced estate planning attorney can lessen your gift tax burden in creating an irrevocable trust.
Assistance in Medicaid Planning
Many states have strict asset requirements for those seeking Medicaid assistance for assisted living and nursing home care. Placing assets in an irrevocable trust may assist in planning for Medicaid eligibility.
The Beneficiaries Can Gain Assurances Regarding the Trust
Finally, when you place assets in an irrevocable trust, your beneficiaries will have assurances that they can count on the funding from the trust without concern that it could be revoked at any time. This is, of course, a preference that is entirely up to you, and there is certainly nothing at all wrong about creating a revocable trust, but some persons like being able to offer this feature to their beneficiaries.
Create an Irrevocable Trust With a Pasadena Estate Planning Attorney
Estate planning and probate attorney Christopher B. Johnson, located in Pasadena, California, has years of experience in all aspects of estate planning, and works with clients from all walks of life to create trusts that reflect their needs and those of their beneficiaries. To request an immediate consultation, contact him today at (877) 755-9178.