To Give or Trust – Why Irrevocable Trusts May Offer You More Benefits Than Gifting


Sometimes in an effort to reduce assets to qualify for Medicaid, individuals choose to simply gift their kids, family members or other beneficiaries their inheritance. However, before you just decide to go this route, you may want to consider an irrevocable trust.


What is an irrevocable trust?

A trust is a legal entity where a third party – or trustee – holds assets on behalf of one or more beneficiaries. An irrevocable trust is one that cannot be changed after it is created. Most of the time, irrevocable trusts are designed to allow you to retain the income for living expenses, while the principal cannot benefit you or your spouse – but goes to your beneficiaries upon your death. While an irrevocable trust requires more effort than gifting, it also could offer a better way to preserve your assets for those you love.


What are some of the benefits to creating an irrevocable trust?


Control over your assets. An irrevocable trust allows you to maintain some control of your estate. When determining the terms of the trust, you’ll have the opportunity to establish rules for the trustees, timing and more. While the trust cannot be changed, you’ll be able to change the beneficiaries of the trust through a power of appointment in your will.


Privacy and shielding from probate. An irrevocable trust avoids probate and the process remains private. By avoiding probate, it saves your beneficiaries a significant amount of time, stress and financial burden.


Protection for the future. Giving money directly to a family member or friend poses several serious risks. The person could lose the money through bad investments or recklessness, a messy divorce or have to pay it to creditors. Worse yet, what if the person who received the assets dies? Your assets are then distributed according to their estate plan. A trust also offers protection from creditors (both yours and your beneficiaries) and lawsuits. Bottomline, an irrevocable trust allows you to keep the funds secure for both you and your beneficiaries.


Taxes savings for beneficiaries. Often, trusts are set up in a way that provides tax advantages for your beneficiaries. Assets that have increased in value receive a step up in basis that helps your beneficiaries avoid a significant tax charge when they inherit your property. Gifted assets do not qualify for this.


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If you are interested in creating a trust or simply want to talk about the pros and cons of an irrevocable trust, contact us today to set up a meeting. We are happy to advise you on what may work best for your specific situation.


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