What is an Irrevocable Trust?
An irrevocable trust is a type of trust that, once established, cannot be modified or terminated by the grantor without the consent of the beneficiaries. This means that the assets transferred into the trust are permanently removed from the grantor's estate, providing various benefits, especially in the context of estate planning and legacy planning.
Key Features of Irrevocable Trusts
- Asset Protection: Assets held in an irrevocable trust are generally protected from creditors and legal judgments, making it a valuable tool for safeguarding wealth.
- Tax Benefits: Transferring assets into an irrevocable trust can lead to significant tax advantages, including potential reductions in estate and gift taxes.
- Control Over Distribution: Grantors can set specific terms for how and when assets are distributed to beneficiaries, ensuring that their wishes are honored.
- Medicaid Eligibility: An irrevocable trust can be used to help individuals qualify for Medicaid by removing assets from their countable resources.
Considerations
While irrevocable trusts offer numerous benefits, they come with limitations. Once assets are transferred into the trust, the grantor relinquishes control over them, which may not be suitable for everyone. It's crucial to consult with a financial advisor or an estate planning attorney to determine if this is the right option for your legacy planning strategy.