Is There Ever Any Reason to Use an Irrevocable Trust?
At some point during your estate planning journey, you may come across the term “irrevocable trust.” You may also encounter a person or professional who tries to convince you that using an irrevocable trust is a good idea, but be wary.
Using an irrevocable trust is rarely a good idea. In fact, according to Kiplinger, there are three instances in which you might want to consider an irrevocable trust, and three instances only. In most other cases, a more flexible estate planning tool may be more appropriate.
Qualify for Government Programs
If you plan to take advantage of Supplemental Security Income or Medicaid in your far distant future, you may need to shelter assets and income so that you do not exceed the programs’ strict income requirements. An irrevocable trust is just the tool to help you do just that, as this type of trust requires you to relinquish control of everything you place into it. With this type of trust, you can preserve your wealth for future generations without compromising your ability to qualify for government benefits.
Minimize Estate Taxes
If you amassed substantial wealth over your lifetime, you may seek out ways to minimize estate taxes for your family’s benefit. There are several irrevocable trusts, such as an irrevocable life insurance trust, charitable remainder unitrust and grantor retained annuity trust, that provide significant estate tax savings — or that help to eliminate estate taxes entirely.
Protect Assets from Creditors
Finally, if you anticipate being on the receiving end of several lawsuits or judgments, you may be able to protect your assets via an asset protection trust. An asset protection trust can protect everything within it from collections, but it does require you to beneficiaries who are not yourself or persons related to you. Most states, if they allow them, have strict laws regarding asset protection trusts.
There are only a few circumstances in which it makes sense to use an irrevocable trust. Discuss the pros and cons with a professional to make sure you use an estate planning tool that is right for you.