Irrevocable trusts play an important role in estate planning
One of the most important tasks an adult has to handle is creating an estate plan. This sets a plan for your assets so a transfer from you to your loved ones can happen after you die.
There are several options for laying out who gets what. One of these is an irrevocable trust. This is a trust you create that can’t be changed once you set the terms. While you have to give up control of the assets to the named trustee, you and your beneficiaries will reap important benefits.
Asset protection
One of the primary reasons someone might choose to include an irrevocable trust in their estate plan is for asset protection. Assets placed in an irrevocable trust are generally protected from creditors and legal judgments against you.
Estate tax benefits
By transferring assets into the trust, they are removed from your taxable estate, so they aren’t subject to estate taxes upon your death. This can result in substantial tax savings, especially for larger estates that exceed the federal estate tax exemption limit.
Medicaid planning
Assets within an irrevocable trust aren’t considered part of your personal assets when determining Medicaid eligibility. However, it’s important to note that there are look-back periods that Medicaid considers, and early planning is essential to avoid penalties.
Privacy
Since the assets held in an irrevocable trust are transferred outside of probate, the details of those assets and the terms of their distribution remain private. This privacy can be important for individuals who wish to keep their financial affairs and their plans for their estate out of the public eye.
An irrevocable trust allows you control over how and when assets are distributed to beneficiaries. You can set specific terms and conditions within the trust document, dictating how the assets should be managed and disbursed by the trustee. Working with someone familiar with these matters can help you to set terms that make this a central part of your estate plan.