Good Reasons to Establish an Irrevocable Trust
An irrevocable trust places your assets out of reach to anyone but the trustee and beneficiaries. It’s an effective estate planning tool when it’s used judiciously, but it’s not right for every situation. If you’re unsure if this is an option for you, a trust administration lawyer in Las Vegas can offer further guidance.
Why Do You Want to Create an Irrevocable Trust?
Most legal contracts and entities are easy to change if your circumstances change. An irrevocable trust is meant to be permanent; except under very specific circumstances, it will only cease to exist when the settlor dies. Before creating one, ask yourself:
• Why do you want to create this trust?
• Do you have the right assets to fund it?
• Is there a chance that you may need these assets someday?
• Is there another legal way to accomplish the same goals?
When Is an Irrevocable Trust a Good Idea?
There are only three good reasons to establish an irrevocable trust, which are:
1. You want to avoid estate taxes. This reason is why life insurance policies are sometimes placed in such a trust. It allows you to pass gifts and transfer assets to spouses, family members, or charities without passing on a tax to them in the process.
2. You need to enroll in a government program. No one plans to become disabled or need assistance to pay for long-term medical expenses. Placing assets in a trust allows you to pass on your assets to your family untouched while helping you meet income restrictions for programs like Medicaid and SSI that cover the cost of medical care.
3. You need to protect your assets. Those who are in high-risk occupations, such as medical care providers, stock brokers, and developers can place assets in a trust to shield them from lawsuits. This is a distinct advantage for professionals whose personal assets aren’t protected by a corporate structure.
What Are the Consequences?
For many things that seemed like a good idea at the time, there are unintended consequences. Putting assets in a trust may defer estate taxes when the settlor dies, but there may be a capital gains tax later that mitigates any advantages. Placing a home in an irrevocable trust may eliminate a tax on the beneficiary, but it will make it difficult to obtain a second mortgage or improve the property.
If you have questions about trust or estate planning, an attorney at Sean Tanko Law has answers. Contact us today to request a consultation.