Court Bonds

Irrevocable Trust?



The thought of not being able to undo a decision is downright scary—and generally more so when it comes to money. So why would anyone want to place assets in an irrevocable trust? Estate lawyers explain how irrevocable trusts can be used strategically to ensure care for ourselves or loved ones with special needs.


Scary But Sometimes Necessary

When assets are placed in a revocable trust, the person who created the trust (aka the settlor) can dissolve it—and take back the assets—anytime. As the name “irrevocable trust” conveys, it cannot generally be rescinded. Although that is a frightening thought, Parman Law explains that establishing an irrevocable trust can turn out to be a wise action for families:


Many people with special needs rely on the Medicaid program as a source of health care insurance. There is another government program called Supplemental Security Income that provides…income to qualified people with disabilities.

These programs are intended to provide a safety net for individuals with very sparse resources, so there are low income and asset limits. If you have someone on your inheritance list that is relying on these programs, you have to take ongoing eligibility into account. A sudden windfall of money could trigger a period of ineligibility. To account for this, you could convey assets into an irrevocable supplemental needs trust….The trustee youve named would be able to use assets…to satisfy the supplemental needs of the beneficiary. These would be needs that are not being met by the government programs. As long as the trustee follows all the rules correctly, they would not jeopardize eligibility for these benefits.


Our Own Needs?

Frequently, when the topic “estate planning” comes up, the focus is on how we will pass  assets on to loved ones or causes we care about. While these are of course important goals, effective estate planning means thinking about ourselves too. Not burdening the next generation with care needs is a noble goal—but it requires pragmatic action to accomplish, especially as we trend toward longer lives. As Parman Law wisely points out, establishing an irrevocable trust can be a helpful tool in a care plan for ourselves:


Most senior citizens will eventually need long-term care, and many will spend their final days in nursing homes. These facilities are extremely expensive, and Medicare will not help with nursing home costs. A married couple might have two rounds of long-term care expenses. Medicaid will pay for long-term care, but once again, there are low income and asset limits. To position resources out of your name in an effort to qualify for Medicaid, you could convey them into an income-only Medicaid trust. This would be an irrevocable trust, so you would not be able to touch the principal or dissolve the trust.

However, until and unless you apply for Medicaid to pay for long-term care, you could continue to receive distributions of the earnings from appreciable assets that have been conveyed into the trust.


Tips for Successfully Establishing Trusts

When working with an attorney to transfer assets into any type of trust, it is wise to create a detailed trust agreement. Doing so arms the trustee you designate to administer it with a thorough overview of your intentions for the assets. Don’t forget to also provide the trustee with the practical details, like account and contact information, needed to successfully administer the trust. Appointing a reliable trustee is also essential. As lawyers remind us:With a proper trust, there will not be court involvement which means this person will have no court oversight in how they do their duties as trustee—choose wisely!” Learning about the essential duties of a trustee will help you better understand the role.


Choosing a trustee requires careful reflection on the qualities, skills and time commitments a trustee will need to effectively administer the terms of the trust. Although it is common for families to appoint adult children, other relations or close friends to serve as trustees, doing so is by no means a requirement. It is possible to appoint a professional trustee and naming a neutral, experienced trustee can be especially helpful if conflicts or time constraints are a reality.  Keep in mind too, that grief and the stress of administering a trust can sometimes become too much for relations. It’s also helpful to know that trustee bonds are an important safeguard for the beneficiaries of the trust—including yourself. Essentially, a trustee bond is a type of fiduciary bond that guarantees that the trust will be administered in accordance with the agreement—and the law. Colonial Surety makes it quick and easy to obtain a trustee bond online:


Obtain Trustee Bond Here.


Good To Know

Experts at Collins Law Group offer additional examples of trusts, including these two types of irrevocable trusts that may also help families achieve specific goals:


  • Children’s or Grandchildren’s Irrevocable Education Trust: A trust used by parents and grandparents for a child’s or grandchild’s education.


  • Irrevocable Life Insurance Trust: A trust used to prevent estate taxes on insurance proceeds received at the death of an insured.


Trust, Family and Elder Law?


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