The basic definition of an irrevocable trust is that the trust is not able to be modified, changed, amended, or revoked. The terms of the trust are final as soon as the trust has been created. None of the terms are able to be changed, even slightly, at any point in time, excepted under very rare and isolated circumstances. So, why would someone create an irrevocable trust? What is the point of creating a trust that is so protected? There are some advantages for irrevocable trusts as opposed to revocable trusts that you can discuss with a trust lawyer O’Fallon, Missouri relies on.
Creditors and Irrevocable Trusts
If you work in a job that puts you at risk for lawsuits, or even if you do not, having your assets in an irrevocable trust can help protect them. Once you transfer the ownership of your property to an irrevocable trust, the property cannot transfer into someone else’s ownership, so it is safe from anyone trying to sue you or any creditors. The property no longer belongs to you; it belongs to your trust. Since the property now belongs to the trust, a judgment holder or creditor is not able to take assets from anything or anyone that is not in the lawsuit.
Estate Taxes and Irrevocable Trusts
When you transfer property into an irrevocable trust, it does not add to the value of your estate in terms of estate tax purposes. Similarly with lawsuits, if your property is in an irrevocable trust, the Internal Revenue Service cannot tax your estate for the value in the irrevocable trust. This is because you do not own the property anymore and therefore it does not play a role in your estate. This can be especially beneficial if your estate is very large.
Government Benefits and Irrevocable Trusts
You are less likely to qualify for certain government benefits, including Supplemental Security Income and Medicaid, if you have many assets Even if your estate is too small to be affected by estate taxes, by transferring your assets into a revocable trust you could avoid your property’s value depleting through the years. By having an irrevocable trust, you could protect your assets if you have a child with special needs to ensure your assets do not inhibit them from qualifying for necessary government benefits.
Facts about Revocable Trusts
You are able to amend or revoke a revocable trust at any point in time that you decide, assuming that you are mentally competent. However, these trusts are not able to protect your assets against estate taxes or lawsuits in the same way that an irrevocable trust can. When you have a revocable trust, you are able to put the property and assets in the trust but then also reclaim ownership over them at any time. Therefore, the law would consider these assets as still belonging to your personally. Because of this, the value can be added to your estate, be part of a lawsuit, and could be used to determine if someone qualifies for a government benefit.
Regardless of if you create a revocable trust or an irrevocable trust, the trust automatically becomes an irrevocable trust when you die because you are not able to change it.
Thank you to our friends and contributors at the Legacy Law Center for their insight into trusts and estate planning.