What is an Irrevocable Trust?
Estate planning is complicated. There are many different tools and strategies available. Depending on your financial circumstances and your objectives, you may benefit from creating a trust. There are a number of different types of trusts available. At Arnold & Smith, PLLC, we want every person and every family to have a full understanding of their options. In this article, our Charlotte estate planning attorneys explain the key things to know about irrevocable trusts in North Carolina.Irrevocable Trust: Defined
As simply defined by Investopedia, an irrevocable trust is a “type of trust where its terms cannot be modified, amended or terminated.” In contrast to revocable trusts, the grantor (creator of the trust) must sacrifice full ownership of their property when creating an irrevocable trust.
A trustee will be assigned and control will be in the hands of the trustee and their beneficiaries. The person who creates an irrevocable trust cannot serve as the trustee nor can they be listed as a beneficiary. In other words, they will have no control over what happens to the trust or the assets.What is the Purpose of Creating an Irrevocable Trust?
You may be wondering: What is the benefit of creating an irrevocable trust? It is certainly a valid question to ask. After all, you always have the option of creating a revocable trust. On the surface level, an irrevocable trust seems to be a less desirable alternative. While it is true that revocable trusts are better tools in many situations, irrevocable trusts can be advantageous because they actually remove assets from your estate. This can be an effective strategy for three different reasons:
- Additional Protection From Creditors: If you have concerns about creditors making a claim against your estate, it may be advisable to set up an irrevocable trust. When done properly, an irrevocable trust can be used to remove assets from your estate and, potentially, protect them against claims made by creditors. Whether this strategy will work effectively depends on your specific financial situation.
- Limiting Estate Tax Liability: If you are worried about estate tax exposure, an irrevocable trust may be a viable tool to limit your total financial liability. Estate tax planning is highly complicated. As such, it is best to consult with an experienced estate tax planning attorney who can help you devise the most sensible strategy. Estate taxes may be changing in the coming years, so it is a good time to plan ahead.
- Qualifying for Long Term Care Benefits: Finally, one of the most common reasons for setting up an irrevocable trust is to qualify for public nursing home and long term care benefits through Medicaid. Long term care costs can be enormous. For reference, Genworth Financial's annual Cost of Care Survey finds that the average annual cost of a private nursing room in Mecklenburg County is $103,295. Medicaid can cover much (or all) of those costs. However, a person can only qualify if their income and assets are low enough. In some cases, an advanced estate planning strategy using an irrevocable trust is an effective way to preserve assets while maintaining eligibility. An attorney can help you and your family determine if this is a practical option.
Of course, an irrevocable trust has an obvious disadvantage: When you put assets into an irrevocable trust, you lose your personal right to control that money or property. As a general matter, it only makes sense to create an irrevocable trust instead of a revocable trust if you have a good reason to remove assets from your estate—protection from creditors, reducing tax liability, or qualifying for public long term care benefits—and you have a clear heir in mind. If you have any specific questions about setting up an irrevocable trust, it is highly recommended that you consult with an experienced estate planning lawyer. As these trusts cannot be undone or modified, it is imperative that the legal structure is set up the right way.Contact a North Carolina Trust Planning Attorney for Immediate Legal Help
At Arnold & Smith, PLLC, our North Carolina estate planning lawyers have extensive experience helping people set up irrevocable trusts. We will put the estate plan in place that best protects your assets and achieves your objectives. Contact us right now to arrange your confidential case assessment. From our legal offices in Charlotte, Monroe, and Mooresville, we represent people and families throughout the area, including in Gastonia, Kannapolis, Matthews, Indian Trail, Newton, Statesville, Salisbury, Troutman, Lowesville, Caldwell, and Rocky River.