There are many reasons why a person would hold their assets in an irrevocable trust. The term irrevocable means that once the trust is created, the grantor (or person who created the trust) no longer has any control over the trust. They cannot edit it, modify, terminate or change beneficiaries and so, you should be certain of your decision before creating this type of trust.
Why would I want to give up control over my own assets?
The main reason people do this is protection and planning for estate and tax purposes. Once property is in an irrevocable trust, it is no longer considered their property. Consequently, the assets are removed from the grantor’s taxable estate. The grantor is also relieved from any tax liability based upon the income that the trust generates. Some people decide to put their assets into irrevocable trust so that their assets won’t be seized by a nursing home, should they fall ill and need long-term care. One point of interest, if you are looking to avoid seizure of assets by nursing homes, there is a five-year look-back period and so, the trust must be in existence at least five years for you to have it no longer considered part of your estate by nursing homes or other creditors.
One way that Irrevocable Trusts are used is for life insurance policies. Life insurance proceeds are not taxable to the recipient; but, they are included in determining if the estate is taxable. If a life insurance policy is owned by your Irrevocable Trust, this will take the beneficial amount of your policy out of your estate (because you are making a “gift” of the policy while you are still alive) yet remain tax free for the beneficiary.
Contact one of our experienced attorneys today to learn more.