Trusts as a whole can be divided into two categories – revocable trusts, which can be changed, and irrevocable trusts, which can’t. There are many different types of irrevocable trusts with names like GRAT’s, IDGT’s, ILIT’s and more. Each one is has its own idiosyncrasies and set of rules. Why would you want an irrevocable trust? Here are the three key reasons irrevocable trusts are used by estate planning attorneys.
1. To Qualify the Client for Medi-Cal or Veterans Assistance
Both Medi-Cal and VA benefits look at the size of an estate to qualify someone for assistance. The person applying for these benefits has two options when their assets are over the minimum: they can “spend down” their assets until they qualify, or they can consult with an experienced estate planning attorney to create an estate plan that will allow them to keep the benefits of their hard earned money, and still qualify for the assistance they need.
2. To Keep the Client’s Estate from Going Over the Estate Tax Exemption Amount
For estates larger than the exemption, it is very important to use irrevocable trusts to minimize or eliminate potential estate tax consequences. Over the past decade the estate tax exemption amount has been a moving target, with a question mark each year as to what congress will do with the amount of the exemption. Currently the exemption amount is $5,250,000, and will adjust for inflation each year.
3. To Protect the Beneficiary from Creditors, and Sometimes Themselves
Most of the time a beneficiary can directly inherit your estate. Sometimes however, your beneficiary can’t or shouldn't inherit the money directly. If the beneficiary is on disability, or is under a conservatorship for example, it is a great advantage to create a special needs trust. With a special needs trust, your beneficiary will be able to enjoy the benefits of having that money available to meet their needs without interfering with their current benefits. These types of trusts can also be set up to protect the inheritance from creditors with a small sacrifice of direct control over the funds.
Irrevocable trusts can solve very large problems. Their complexity is definitely outweighed by the benefits provided to the person creating the trust, and sometimes their beneficiaries as well.
Tags:Advanced Tax Planning Death Tax Exemption Medi-Cal Special Needs Veterans Assistance
Erik is the founder of Estate Plan Pros, a leading estate planning practice in Elk Grove. Erik’s practice focuses on Estate Planning Law. In Estate Planning, Erik works with clients to make the process simple, so clients can focus on more important things. He is a local authority for specialized estate planning instruments, like Special Needs Trust, Irrevocable Trusts, or other focused documents. Erik has litigated, negotiated, and mediated the gamut of family law cases. With this unique perspective as a family law and estate attorney he can often spot issues otherwise overlooked. Prior to graduating he worked as a legislative analyst for a non-profit organization, and volunteered as a youth counselor. Erik currently participates in local politics and is an active member of his local church. Erik is very happily married and has two young sons. Together, his family loves to get outdoors and enjoy the varied activities the Sacramento region has to offer.