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When you’re beginning to plan for your family’s future and create your estate, asset management is an important part of the process. Trusts are one vehicle used to protect assets, lower the tax burden on you and your family, and reduce countable assets.
An irrevocable trust has some specific advantages, particularly when it comes to tax sheltering and/or asset reduction strategies. However, these trusts require you to give up control over assets, so they are only useful in specific situations.
The team at The Law Offices of Kimberly Butler Rainen wants families to be fully informed of their options when making important decisions about their financial future. Here is what you need to know about irrevocable trusts, how they are used and how our firm can help you choose the best trust for your needs.
What Is an Irrevocable Trust?
An irrevocable trust is one in which the creator, or grantor, grants control of the trust and the assets within to a designated trustee. The grantor is therefore unable to “revoke” the trust and retitle the assets in their name. They also cannot make changes to the terms of the trust without permission from the trustee.
How Does an Irrevocable Trust Work?
When you create an irrevocable trust, you’ll need to name both a trustee and the beneficiary(ies). It is the trustee’s job to manage and administer the trust.
You’ll then transfer assets into the trust, which retitles them in the trust’s name. Almost any kind of asset can be included in a trust, but some common types are real estate, stock portfolios, life insurance policies and savings.
Once you name the trustee and beneficiaries and retitle your assets, you will no longer be able to cancel or change the terms of the trust without the permission of the trustee. Trustees do have a fiduciary duty to the grantor and the beneficiaries, which requires them to act in the best interest of the beneficiaries and to use prudence when administering or making changes to the trust. You also retain the ability to “fire” the trustee if they do not meet these duties.
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Why Would You Want an Irrevocable Trust?
While it may seem strange to consider relinquishing control of important assets like real estate, there are certain financial and tax benefits to these kinds of trusts. For example, irrevocable trusts:
- Allow beneficiaries to avoid capital gains taxes on assets.
- Reallocate assets in the trust to reduce countable income, therefore qualifying you for Medicaid to pay for future care costs.
- Let you continue to receive income from assets (only with certain types of irrevocable trusts).
- Allow you to create parameters for how money from assets will be distributed.
- Reduce taxable assets in your estate.
- Allow assets to continue accruing interest or appreciate in value.
- Provide a way to pass assets to your children or other beneficiaries while informing trustees and beneficiaries of your wishes for how those assets should be managed and distributed.
Are Irrevocable Trusts a Good Idea?
This is a complicated question because it really does depend on your individual circumstances, financial situation and priorities. However, we often recommend irrevocable trusts for clients who:
- Are trying to qualify for Medicaid to pay for nursing home care.
- Are hoping to reduce estate or capital gains taxes for their spouses or children.
- Would like to protect assets while earning income from accrued interest.
- Would like to create conditions under which assets can be distributed.
Ultimately, the goal of an irrevocable trust is usually to reduce countable assets so that your tax basis and income is below the tax threshold or requirements for government assistance.
How Do I Set Up an Irrevocable Trust?
Setting up any kind of trust is a very complicated process that often requires the expertise of an irrevocable trust attorney. Trusts are legal arrangements that can be contested in a lawsuit, so it’s very important that they are set up properly, with the correct terms and conditions.
Additionally, because you will essentially lose ownership of the assets in an irrevocable trust, it is even more important that you are clear on your goals and the purpose of the trust before you sign it over to a trustee. It will be much more difficult or even impossible for you to make any type of adjustments once the trust goes into effect. A trust attorney can also help you review trust provisions and conditions to ensure that your wishes for your assets are met and that you maximize the benefits of using a trust.
Lastly, there are several different kinds of irrevocable trusts used for various purposes, all with their own tax benefits and requirements. An experienced attorney will help you choose the type that most closely aligns with your needs.
Our Experienced Team of Irrevocable Trust Attorneys Will Give You Peace of Mind
At The Law Offices of Kimberly Butler Rainen, trust creation and estate management isn’t just our specialty — it’s something we’ve done for our very own families. We know just how confusing irrevocable trusts can be and understand how important it is that your family is cared for in the future.
Our offices have helped countless Andover families ensure their financial security with personalized estate and trust planning. To learn more about how you can protect assets and secure your family’s future, contact us today for a consultation.
What Is the Cost of Estate Planning?
While tailoring a plan to you and your loved one’s needs is certainly more expensive than creating a will online, when it comes to estate planning, you get what you pay for.
Estate planning is a worthy investment regardless of the size of your bank account. Furthermore, it only makes sense that the more assets you have, the more careful you will want to be about what happens to them — and who gets to control them. Complex estate planning can cost a pretty penny up-front, but this is almost always a fraction of what would otherwise be lost to taxes, probate and other lost benefits, such as tax exemptions and the cost of eldercare.
At The Law Offices of Kimberly Butler Rainen, we are here to make the process of estate planning as easy as possible for you. We provide each of our clients the same comprehensive, attentive approach we have given to our family when planning for their futures. To start the conversation about planning your estate, contact our office today.