You may have been resistant to the idea of a trust. After all, trusts involve some complex ideas and concepts. It can be difficult to wrap your ahead around let along figure out the right trust to establish to help further your goals and protect a future you want for you and your loved ones. After much investigating, you may have settled on setting up an irrevocable trust. After all, the benefits of an irrevocable trust are undeniable. Their use can serve an incredibly versatile set of goals, including tax avoidance, protection of property from creditors, and preservation of property from things like the Medicaid spenddown. Here, we will go into some of the details involved in setting up an irrevocable trust.
Setting Up an Irrevocable Trust
You, as the creator of the trust, are often referred to as the trust “grantor.” You will be tasked with setting forth the terms of the trust in the governing trust document and, of course, this should be done with great care. Being thoughtful about the terms of the trust is especially critical when setting up an irrevocable trust as amending or revoking the trust once establish is nearly impossible.
You will need to name a trustee who will be tasked with managing the trust for the benefit of the named trust beneficiaries. You will also need to fund the trust. This is accomplished by placing assets in the trust. To place an asset into a trust, you must change ownership of the asset itself so that it is owned by the trust. This will often involve something like retitling the asset into the name of the trust.
When establishing the terms of your irrevocable trust, you should consider your goals for the trust and why you are establishing it in the first place. Sure, an irrevocable trust can be used to reduce taxes and protect assets from creditor claims. It may also be used to protect a beneficiary who has particularly poor spending habits or may be young and not well versed in money management. For this type of purposes, you may wish to structure the terms of your trust as a spendthrift trust. A spendthrift trust will not only shield trust assets from creditors of a beneficiary, but it will also allow you to structure trust distributions so that a beneficiary does not have access to all trust assets at once. This can prevent trust assets from being rapidly spent away by a beneficiary.
Alternatively, you may wish to structure the terms of the irrevocable trust so that it is a special needs trust. A special needs trust allows a person to provide financial support to a disabled loved one without jeopardizing their qualification for need-based government benefits. To accomplish this purpose, however, the trust must be properly structured so that the disabled beneficiary does not have direct access to trust funds. Furthermore, distributions must only go towards covering qualifying expenses. Should trust distributions go towards something that is covered by government benefits, this will run the risk of the beneficiary ending up being disqualified from the government benefit programs.
Estate Planning Attorney
For assistance setting up an irrevocable trust to best serve your needs and goals, reach out to the trusted estate planning team at Verras Law. Contact Verras Law today.