As we get older, we may begin to shift our attention to estate planning. For most people, gifting comes to mind first; however irrevocable trusts may have some distinct advantages.
What is an irrevocable trust?
An irrevocable trust is a legal agreement established between 3 or more people. The Grantor (or settlor) is the individual who is funding the trust. The trustee is the individual who manages the trust. The beneficiary is the person (or persons) who receive the trust property.
What are the advantages of an irrevocable trust?
One of the main benefits is that the grantor has some control over how the trust is held, managed, and distributed by the establishment of a trustee. The grantor also retains the right to alter the beneficiaries through the power of appointment in the grantor’s will. If the grantor is concerned over reckless use of the funds by the beneficiaries, he/she can appoint a trust protector, who has the authority to approve or disapprove distributions during the grantor’s lifetime.
A common concern among grantors is protecting the funds from loss (for example through a divorce or to creditors). With the proper wording, an irrevocable trust can be set up to protect assets in an unfortunate event such as these.
Another factor to consider is qualifying for certain government programs such as Medicare. Many individuals find themselves having to decrease assets to qualify for long-term care (frequently through gifting). However; assets placed in an irrevocable trust can continue to earn interest and a long-term care facility cannot tap into those funds.
As with all financial matters, an irrevocable trust requires careful consideration of your situation and your long-term objectives. Contact us at Chandler & Knowles CPAs to make sure this is the best plan for your situation.