A trust is a legal arrangement whereby you give another party the power to control and manage your assets on behalf of a third party, usually your beneficiaries. For a revocable trust or living trust, the property you grant the trust remains within your control, and you may amend or revoke the terms any time you wish to do so. However, there are drawbacks associated with your control of the assets since the ownership remains under your name.
With an irrevocable trust, property under it transfers ownership from you to the trust. In addition, the terms cannot be easily modified or revoked once the trust is established. Depending on the size of your estate, it may be a beneficial form of estate transfer. There are benefits an irrevocable trust offers that a revocable trust does not. They include:
Protecting your assets
Since you do not legally own the property in an irrevocable trust, creditors cannot attach the said property to recover the debt. The same applies to the beneficiaries’ creditors. As such, your estate is safe from repossession in case you default on debt. In addition, if the beneficiary gets a divorce, the property under a trust cannot be obtained from them to their ex-spouse.
You may become eligible for certain government programs
Given the stringent income and asset limitations on the beneficiaries of Medicaid or Supplemental Security Income, it may be advisable to put your property in an irrevocable trust to be eligible for consideration. That way, these assets, and their income are not included as your own, and you can, therefore, not lose these government benefits.
Minimizing estate tax and avoiding probate
An irrevocable trust will relieve you of the tax liability that comes from the income generated by the assets. In addition, property under a trust is not considered part of your taxable estate, which may, in a way, save you money. Also, since a trust does not have to go through the probate process, it will save your estate the time and legal fees.
Is an irrevocable trust right for you?
It all depends on your end objectives. If you are thinking of creating a trust, making informed decisions will help you settle on the correct type of trust for your estate. What works for another person may not necessarily work for you, and this is why you should proceed with information before taking any action.