If you would like to pass on your assets during your lifetime, you may want to consider an Irrevocable Trust. While simply giving something now to someone you love sounds best, an Irrevocable Trust has proven to be a better way to preserve those assets for the future.
A trust is a legal entity under which the “trustee(s)” holds legal title to property for the benefit of others, referred to as the “beneficiaries.” The trustee must follow the rules provided in the trust instrument. Once it’s created, an “irrevocable” trust cannot be changed. In most cases, this type of trust is drafted so that the income is payable to you, the “grantor,” the person establishing the trust for life, and the principal cannot be applied to benefit you or your spouse. At your death the principal is paid to your heirs. This way, the funds in the trust are protected and you can use the income for your living expenses.
Advantages of Setting Up a Trust
- Income. You can continue paying for living expenses with the income generated from the assets in your trust. It may be set up for you to receive regular income payments or to grant the trustee the discretion to make payments.
- Control. As the grantor of the irrevocable trust, you maintain some control over the assets. You choose the trustees and establish the rules of the trust. You can also retain the right to change beneficiaries with a power of appointment in your will.
- Asset protection from creditors. Money given to a family member directly can be lost through carelessness, creditors, or divorce. Funds kept in a trust are protected for the future.
- Taxes. A properly structured trust can have a tax advantage for your beneficiaries. Assets that increase in value will receive a “step-up” in basis upon your death, which means your beneficiaries will pay less in capital gains taxes. On the other hand, assets that are gifted do not receive a “step-up.”
- Medicaid. It’s important to plan ahead in case you will need long-term care benefits in the future. If you give away money or fund an irrevocable trust within the five years (the “look-back period”) before applying for Medicaid, you may face a period of ineligibility for Medicaid benefits. The actual period of ineligibility will depend on the amount gifted or transferred to the trust. Putting assets in a trust allows you to plan ahead while retaining some income and control over the assets.
Please call our office today at (845)425-3900 to find out more about setting up your Irrevocable Trust.