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Caring For Generations

Irrevocable Trusts – Unlovable, But Loving

by | Apr 24, 2024 | advisors, clients' legal issues, Directives, estate and tax planning

“When you create an irrevocable trust you are creating a document you cannot change easily, and the property you transfer to the trust is no longer in your control,” Daniel Timins writes in Kiplingercom. There are only three possible reasons anyone would part with power over his or her own assets, Timins answers;

  • to minimize estate taxes
  • to become eligible for government benefit programs
  • to protect assets from creditors

At Geyer Law, while we remind clients that, under current law, federal estate tax applies only to estates worth at least $13.61 million, the exemption is scheduled to expire at the end of next year, reverting to $5 million plus an inflation adjustment unless Congress extends it or makes it permanent.

In terms of qualifying for Medicaid eligibility while still preserving assets, our estate planning lawyers choose from an arsenal of planning tools to help an individual qualify for benefits while protecting assets for a healthy spouse or for children. While business owner clients may be concerned about protecting their own assets from creditors, often we find our clients more concerned about their heirs’ creditors!.

The Kiplinger article mentions three specific types of irrevocable trusts that can be used to protect assets against estate taxation, including

  1. irrevocable life insurance trusts (funds are used to purchase life insurance)
  2. grantor retained annuity trusts (the trust creator gets an income stream for several years, but loses control over the principal)
  3. charitable remainder trusts (with income going to family now and the remainder going to charity upon the grantor’s death)

But, if you are not wealthy and have no plans to qualify for Medicaid, there is no good reason to fund an irrevocable trust, the author cautions. In terms of protecting assets from your beneficiaries’ creditors, that can be accomplished with a carefully drafted revocable trust, he adds.

At Rebecca W. Geyer & Associates, we agree. As a full-service estate planning and elder law firm serving the people of central Indiana, we work as a team with our clients’ tax, insurance, and financial planning advisors to best meet our clients’ estate planning and business goals.

Because irrevocable trusts remove control from the grantor, they are not the most “lovable” of the tools available for achieving desired outcomes, but, when they are used, it is out of loving concern for other people.

– by Kristina Shover, Associate Attorney with Rebecca W Geyer & Associates