What Actually Is An Irrevocable Trust?
An irrevocable trust is a trust that once having been created and executed cannot be changed, or changed only in a very limited manner.
What Are The Benefits And Limitations Of An Irrevocable Trust?
One benefit of an irrevocable trust is that there are some asset protections or tax savings that can be achieved. One limitation of an irrevocable trust is that changes cannot be made to the terms of the trust.
What Is A Revocable Trust In Contrast To The Irrevocable Trust?
A revocable trust is generally used for estate planning purposes as a replacement for a will. The person who creates the trust retains the right to make changes to it or revoke it altogether.
Are Most People Hesitant To Put Their Assets In An Irrevocable Trust?
People are correctly hesitant to put assets into an irrevocable trust. It’s not something that should be done lightly; it’s something that needs to be done only after significant consideration and a real purpose that can only be achieved through an irrevocable trust.
Should Someone Have Both A Revocable And An Irrevocable Trust?
For most people, a revocable trust is sufficient. People who have an irrevocable trust usually have a revocable trust as well, because they achieve different purposes. If we were to do an irrevocable trust for some specific purpose, such as advanced tax planning or asset protection, then we still would have other assets that would not be transferred to that irrevocable trust. To protect those assets from probate, we would create a revocable trust for them.
Are Some Assets Suitable For An Irrevocable Trust As Compared To Others?
There are some irrevocable trusts that only work with certain assets, but that’s more of a function of the trust than the asset. For instance, there is a type of irrevocable trust called a qualified personal residence trust, which has a very specific purpose for advanced estate planning. Its purpose is for the only asset that could possibly be in that trust at its creation, which is the settlor’s personal residence. You could not fund that with investment or a business. Other types of irrevocable trusts that are for tax planning, such as irrevocable charitable trusts, are usually best funded with assets that have appreciated securities which have significantly increased in value or income, or income property and real estate that has increased in value. Those are usually the assets that would go into the charitable trust.
How Do I Know Which Type Of Trust Is The Right Choice For Me?
In general, I would start with the presumption that a revocable trust is most likely the correct tool for most people. If there are situations that we need to address that are beyond what the revocable trust can achieve, then we would look at irrevocable trusts. So, that would be advanced estate tax planning, charitable giving or asset protection.
Do Irrevocable Trusts Help In Medicaid Planning?
Yes. In California, we call it Medi-Cal. Irrevocable trusts can help in the planning for Medi-Cal by removing some of the assets from the person’s estate so that they are no longer the owner of those assets. Applying for Medi-Cal is a two-part test: an income test and an asset test. The irrevocable trust can reduce a person’s estate for the purposes of that asset test so that they can qualify for Medi-Cal.
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