As conveyed in the name, setting up an irrevocable trust requires serious commitment. Though there are legal remedies that can be applied if life circumstances shift after an irrevocable trust is established, lawyers recommend crystal clear intent prior to establishing one. Read on for guidance on when irrevocable trusts make sense.
When you establish an irrevocable trust, you essentially give up control of the assets you place in it, and rely on the trustee you appoint to manage them for you. That’s why estate planning lawyers only recommend irrevocable trusts when particular circumstances warrant them. According to Kiplinger, for example: “The only three times you might want to consider creating an irrevocable trust is when you want to (1) minimize estate taxes, (2) become eligible for government programs, or (3) protect your assets from your creditors.”
If your circumstances make establishing an irrevocable trust important, be sure to discuss your specific requirements with a lawyer. As Kiplinger cautions: “Just because you have an irrevocable trust does not mean you qualify for all three benefits of an irrevocable trust. Quite the opposite: A trust that protects you from estate taxes is usually not Medicaid-compliant, and was most likely not set up with a permissible trustee to allow the creditor protection an asset protection trust affords.”
Trustees and Trustee Bonds?
When creating a trust, you (the grantor) name a trustee to administer the assets in accordance with the plans specified in the trust agreement. When families set up trusts, they typically designate a loved one or friend to serve as the trustee, however, an independent fiduciary is also an option. Keep in mind that the trustee role is not a ceremonial one. Trustees are fiduciaries: they are legally bound to the highest duty of care in executing their responsibilities. In fact, given the significant duties undertaken by trustees, the trust agreement may require procurement of a trustee bond. A trustee bond is a type of fiduciary bond that protects the interests of the trust and beneficiaries by guaranteeing the faithful performance of a trustee in accordance with the law. As a leading national provider of many types of fiduciary bonds, Colonial Surety makes it easy and efficient to obtain a trustee bond. Just get a quote online, fill out the information, and enter a payment method. The bond can be printed or e-filed from anywhere.
Good To Know: When To Little Is Too Much?
In many families, income and assets, though modest, can turn out to be “just a little too much” to meet eligibility guidelines for public support. This can become especially challenging as we live longer lives and the cost of living rises. Kiplinger offers this explanation of how irrevocable trusts can be helpful toward qualifying for benefits from Medicaid: “Disabled beneficiaries on Medicaid and Supplemental Security Income have stringent income and asset limitations — if they own or receive too much money they can lose these government benefits. Irrevocable trusts can shelter income and assets, so these limits are not exceeded. The Trustee of these “Medicaid trusts” can never be the Creator. Just like estate tax savings trusts, the Beneficiary has been divested of substantial control over the trust, so the government benefits continue to be provided, because the trust funds are not included as the Beneficiary’s own assets and income.”
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