Are Certain Assets Better Suited For Irrevocable Trusts?

Yes. There are a couple of classic examples. One are long-term gifts to children. If people are trying to build up a reserve of cash for their kids or their spouse that won’t be subject to gift and estate taxation as far as the ultimate calculation of that tax at ones death, an irrevocable trust is a really useful tool to set money aside for them. It won’t be taxable as part of the estate, and takes advantage of gift tax exclusion. Another classic asset that is great to put in an irrevocable trust is an insurance policy. Any insurance policy that the actual person controls is potentially subject to estate taxation. However, if you take that policy and transfer it into an irrevocable trust, then the death benefit is eventually removed from the estate tax calculation of the person’s estate.

You can still pay the insurance premiums to the insurance policy while it’s in the trust and then the death benefits stays inside the trust. So, depending on the policy, that can be maybe a million more dollars that will eventually go to their beneficiaries but doesn’t count towards the estate tax.

How Do You Determine Which Type Of Trust Is Best Suited For A Particular Client?

I look at what their assets are. We see how they are defined, whether they are in securities, real estate, a family company, and so on. We want to determine whether those are assets that can be easily shifted. It’s important to identify assets that have defined beneficiaries, which assets are counted towards the estate tax, and which aren’t. Another thing I look at is what their family looks like and what the family dynamics may be. We work to decide how people want to structure their legacy, and we also look at how people may want to make gifts during and after their lifetime.

If people have charities or non-profits such as churches that they support during their lifetime, then we can structure a variant of the irrevocable trust that benefits them and also manages their ultimate tax burden. We look at what they have, who is in their family, and who they value in their lives, and also what their values are. We use those as our guiding metrics to set up an estate plan or set up a trust plan that will optimally direct money to the right people over the right period of time and keep their taxes as low as we can get them.

How Does An Irrevocable Trust Help In Medicaid Planning?

For clients who are concerned about long-term healthcare planning, understanding Medicaid and Medicare is important. Medicaid is the program that ultimately pays for a lot of people’s long-term care, in particular nursing home care. Since Medicare does not pay for nursing home beyond a 30-day period, Medicaid is the one that steps in to do that payment. To be eligible for Medicaid, a person has to have drawn down their assets below a certain level. One way of drawing down your assets is to transfer them to a trust.

This draw down – the trust transfer – has to happen at least 5 years before the need for Medicaid arises. This calls for a long-term planning strategy, both to ensure financial Medicaid eligibility by minimizing on-paper assets, and to protect their legacy by ensuring that the trust assets can still work for the person’s desired beneficiary.

What Should Someone Look At When Deciding On A Trustee For An Irrevocable Trust?

This depends on the nature of the trust, especially if there are high value assets and management expertise is of high importance. When looking for a trustee, we’re going to look for people with asset management skills. It at this the point where we often recommend people look at having a professional trustee which can typically going to be found within either banks’ wealth departments or with a company that specializes in trust management. Another thing you look at is the dynamics and the relationships between the family members. If someone has a lot of kids, a spouse or a second or a third spouse particularly in multiple marriages, we want to make sure that any family member we choose as a trustee will be able to do that job without a conflict.

We generally recommend people use a professional trustee. The idea is that we want to minimize conflict in the trustee position and emphasize competency and good management.

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