What Is An Irrevocable Trust?
An irrevocable trust is a trust that can only be terminated with the permission of the beneficiary. Once a grantor puts something in the trust, the grantor can’t take that thing out again without the permission of the beneficiary, and it can only then be used on benefit of the beneficiary. Once something has been moved into an irrevocable trust, the grantor has legally transferred ownership. That potentially subjects the asset to the gift and the gift tax, but in planning for the longer term, it also relieves the grantor of having to pay income tax on that asset.
What Are The Benefits And Limitations To An Irrevocable Trust?
An irrevocable trust offers a few key benefits. First, there are potential gift and estate tax benefits. By transferring an asset during your lifetime, you can take advantage of the gift tax exclusion and structure large gifts into an irrevocable trust over a long period of time. By doing that, you’ve transferred your ownership to the trust which eventually moves that asset away from being subject to estate taxation. That’s often great for high-value assets like insurance policies, real estate, and stock.
Seci, depending on the jurisdiction and the type of issue in play, you may also be able to get some big asset protection benefits from it. An asset properly transferred to an irrevocable trust may not be subject to a collection action or a judgment against the grantor.
Further, an irrevocable trust offers some Medicaid planning advantages. By properly transferring an asset to an irrevocable trust, the asset will not be included as an asset in qualifying for Medicaid, a program commonly used to pay for nursing home care.
Finally, irrevocable trusts can allow people to control their assets from “beyond the grave,” to ensure that their children, grandchildren, further future generations get benefit from the assets in the trust.
What Are The Main Differences Between A Revocable And An Irrevocable Trust?
The managerial aspect is a major point of distinction between a revocable and an irrevocable trust. In a revocable trust, the grantor keeps full control over the asset – they can put things in and take them out as they see fit. For that reason, the asset is still going to be counted for the purpose of estate taxation, asset protection, disability and Medicaid planning. For many people, especially those with assets below the estate tax exclusion ($5.48 million in 2017), this is not a not a big deal and the ability to control that property is the most important thing. For other groups of people, such as particularly high wealth families or those who see a need for Medicaid planning, the irrevocable trust becomes an important, perhaps even a critical, part of long term estate planning.
Why Are Most People Hesitant To Put Their Assets In An Irrevocable Trust?
For a lot of people, the hesitance is typically going to be down to the loss of control. Once you put an asset in an irrevocable trust, you’re going to give up full ownership of the property. In many situations, the grantor can maintain lifetime benefit from it, but they will not have the same degree of control. Once in the trust, the trustee will have some, if not complete, discretion to make decisions about trust assets, and the trust beneficiary will have rights in relation to the assets. People are afraid of losing control, and it can cause some understandable concern.
It is important to remember that assets are placed in irrevocable trusts for long-term planning, as part of a comprehensive estate planning and asset protection plan. It helps to ensure that no matter what happens, the people and groups you are about will be able to benefit from your assets.
Can Someone Have Both Revocable And Irrevocable Trusts?
Yes. For many people, the revocable trust will be sufficient if their assets aren’t subject to estate taxation. If there’s not a burning need to either avoid either estate tax or maintain eligibility for something like Medicaid, a revocable trust is perfectly fine. On the other hand, for situations like insurance planning, Medicaid planning, asset protection, planning for large wealth inheritance between multiple generations, then irrevocable trusts come into the picture as an important planning tool. Families in those kinds of circumstances should definitely consider placing some assets in a revocable trust and some assets in an irrevocable trust. Those are the kinds of decisions to make based on the specific asset, the nature of control needed over the asset and what kind of planning is going to be happening to the asset in the short-term, medium-term and long-term.
For more information on Irrevocable Trusts In Georgia, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling (404) 939-7562 today.
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