People who are creating an estate plan have a variety of options for getting their beneficiaries the assets they want them to have. One option is to use an irrevocable trust, which is a legal arrangement that’s set up while the creator is living for the purpose of transferring assets after their death.
Once assets are placed in an irrevocable trust, they are no longer considered part of the person’s estate. That means the creator gives up ownership and control, and the assets are managed by a designated trustee for the benefit of named beneficiaries.
Why choose an irrevocable trust?
While giving up control may sound restrictive, there are several compelling reasons to choose this type of trust.
- Asset protection: Assets held in an irrevocable trust are typically protected from creditors, lawsuits and judgments.
- Estate tax reduction: Because the assets in an irrevocable trust are no longer owned by the grantor, they are not included in the taxable estate, which is beneficial for high-value estates
- Medicaid planning: In some cases, placing assets in an irrevocable trust may help someone meet the eligibility requirements for needs-based programs.
- Control over distribution: Although the grantor gives up ownership, they can set detailed terms for how and when the assets are distributed.
The irrevocable trust is only one part of a comprehensive estate plan. It’s critical for anyone who’s considering this option to understand how it will affect the remainder of the estate and the beneficiaries. It may be beneficial for individuals who want to utilize this option to work with someone familiar with their circumstances and applicable estate planning laws.