What is an Irrevocable Living Trust

What is an Irrevocable Living Trust

Irrevocable living trusts can be an important component of estate plans, as they can protect assets and save tax money . . . but they are not for everyone. Before creating an irrevocable trust, you should understand what they are and take into consideration your individual family and estate situation.  A consultation with a Missouri estate planning attorney can help you understand irrevocable trusts, decide whether one is right for you, and make sure it is drafted correctly so it is legally airtight and will not be challenged.

What are Irrevocable Trusts?

An irrevocable living trust is a trust made while you are alive that, with some exceptions, cannot be changed, amended, or terminated once it is established. This is unlike the revocable living trust that you can change at any time. There are a number of different types of irrevocable trusts that you can make, and each has its purpose, such as protecting assets from taxes or a nursing home. However, once you create an irrevocable trust, you (the grantor) no longer control the assets placed in the trust. Instead, the trust is administered by a trustee for the benefit of the trust beneficiaries you have designated.

Why Make an Irrevocable Trust in Missouri

Whether or not to place assets in an irrevocable trust depends on your individual situation. There are two main reasons to create an irrevocable trust. One is that doing so benefits the grantor of the trust, who may be facing financial challenges such as a lawsuit or divorce.  The other reason is to protect and disburse resources to a loved one or other beneficiary. Some advantages of irrevocable trusts include:

Asset Protection: Assets placed in an irrevocable trust can be protected from creditors and judgments and divorce. If you are anticipating a divorce, are involved in litigation, or are in a profession where you are likely to be sued, assets in an irrevocable trust may not be seized.

Tax Benefits: If you are wealthy enough so that your heirs will have to pay inheritance taxes, and have many assets in your estate that you wish to pass on to your heirs, funds placed in an irrevocable trust may be kept from being subject to estate taxation. This is because assets in the trust are considered to be owned by the trust, not you. This reduction in estate taxes provides more for your loved ones, with less of your estate going to taxes.

Protecting Benefits: If you have a family member with special needs, or someone is trying to get certain government benefits such as Medicaid or SSI, putting assets in an irrevocable trust can keep these assets from counting against you for purposes of qualifying for needs-based state and federal government benefit programs. Referred to as irrevocable special needs trusts, these trusts allow a beneficiary with a disability to receive funds from the trust without that income disqualifying them from receiving government benefits. Putting assets in an irrevocable Medicaid trust can also help protect these assets if you are trying to qualify for Medicaid. This removes the assets in the trust from income calculations when someone needs to go to a nursing home, without having to go through virtually all their money.

Probate Benefits: Assets placed in an irrevocable trust can typically avoid the probate process, which is often time consuming and costly for your loved ones, and leaves them without access to the funds they need after your death.

Charity Benefits: You can set up an irrevocable charitable trust to holds asset and distribute them to charities. You can specify how the trust will manage, invest, and distribute its assets, and you receive some tax benefits in return. You can set up the trust so that your beneficiaries will receive their share for a number of years, after which the charity will receive the remaining assets. You can also have the charity receive their benefits first and then have the remainder go to your beneficiaries.

Disadvantages of an Irrevocable Trust in Missouri

Irrevocable trusts are not for everyone, so you should talk with a knowledgeable estate planning attorney to make sure they are your best option. Some of the reasons you may not want to place assets in an irrevocable trust are:

Loss of Control: You generally can’t change the terms of an irrevocable trust, and you can’t act as your own trustee, so it may not work for people who wish to maintain control of their assets. In order to change the terms of an irrevocable trust, the trustee and all beneficiaries must agree to do so.

Change in circumstances: We can’t always predict the future, so if your circumstances change, such as suffering a large financial loss, having assets in an irrevocable trust that you cannot touch may not be in your best interests, as it will be difficult to change the terms. In some jurisdictions, it may be possible to modify or end an irrevocable trust if a judge so orders. This can happen in situations where the trust’s purpose was fulfilled, has become illegal, or is defeated by compliance with the terms of the trust.

Deciding Between Revocable and Irrevocable Trusts

If an irrevocable trust is not for you, you may still benefit from establishing a revocable living trust. Revocable living trusts are created in order to provide a means to avoid probate and manage assets in the event of disability.  A revocable trust has the advantage of letting you (the settlor),  appoint a trustee to manage your assets on behalf of your beneficiaries, and that trustee can be yourself. You control the trust and make changes to it during your lifetime, and it can be revoked or amended at any time. However, it cannot protect your assets from the high cost of nursing home care.

Get Help with Trusts and Estate Planning

Determining whether an irrevocable trust is right for you is an integral part of the estate planning process, which also involves having a will and documents such as a Durable Power of Attorney, health care proxy, and living will with instructions for end-of-life care. An experienced Missouri estate planning lawyer can help you explore your options, make decisions, and determine whether a revocable or an irrevocable trust is best . . . or whether you even need a trust at all.

Estate planning can seem daunting, but you can trust the Birk Law Firm to guide you through all aspects of protecting your estate and your loved ones. Attorney Kelvin Birk is a Certified Public Accountant as well as a lawyer, and this combined expertise allows our law firm to understand both legal implications and tax issues, in order to provide an especially high level of service. You can count on us for personal, compassionate attention in determining what is right for you.

We offer a free consultation, so call us today at 573-332-8585 to get started with protecting your assets and your family.

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Attorney Kelvin Birk

Attorney Kelvin Birk

Kelvin Birk is a lawyer as well as a certified public accountant, with more than 30 years of experience in accounting and tax and business consulting, and more than 20 years of experience in numerous legal matters. This combined expertise allows our law firm to provide a level of service above that of other firms. Whatever your legal situation, your attorney at Birk Law Firm can counsel you as to the tax implications. We have experience in providing myriad legal representation services to residents of southeast Missouri and other areas.. [ Attorney Bio ]