All I want for Christmas is an irrevocable trust: Here's why it's a lasting gift

Stephen Lacey
·3 min read

Often clients come into my office with three primary objectives: protect their assets, ensure sound quality of life, and provide for loved ones. There are several methods to address these concerns and achieve the clients’ goals, one of which is an irrevocable trust.

What is an irrevocable trust? An irrevocable trust is a trust created by a grantor that cannot be changed or revoked by the grantor, trustee or beneficiaries once established. The grantor permanently moves their assets into the trust and relinquishes control of the trust to the trustee. The trustee executes and manages the trust, and the beneficiary receives the distributions. Although there are instances when the trust can be amended in order to change the trustee or the ultimate beneficiaries, other changes to the trust are rare, costly, and not always advisable.

If your objectives are to minimize estate taxes, prevent creditors from imposing on your estate, or qualify for Medicaid, an irrevocable trust is certainly worth consideration.
If your objectives are to minimize estate taxes, prevent creditors from imposing on your estate, or qualify for Medicaid, an irrevocable trust is certainly worth consideration.

There are three primary reasons irrevocable trusts are beneficial:

Minimize estate taxes:

Currently, estates valued in excess of $11.7 million for individuals and $23.4 million for married couples are subject to the estate tax. These thresholds are due to be cut in half at the end of 2025. If someone possesses assets in excess of these amounts an irrevocable trust can shield the excess amount from the 40% tax rate imposed by the estate tax. The type of irrevocable trust is dependent upon the goals of the client. For instance, if a client is charitably inclined, we may recommend a charitable remainder trust in which the client receives an income stream from such trust but when the client (grantor) dies, the remainder is left to charity which is not subject to the estate tax. This technique is also very helpful in minimizing capital gains taxes for highly appreciated assets.

A similar irrevocable trust is the grantor retained annuity trust in which, again, the grantor receives an income stream from the trust for a set period of time and the remaining trust estate is distributed to the family at the end of the time period, estate tax-free.

Asset protection:

In our litigious society, many people wish to shield their assets from lawsuits or creditors. This is often especially necessary for professionals such as doctors, dentists, lawyers, and small business owners. These trusts include similar provisions as those irrevocable trusts named above but will have further restrictions as to who the trustee may be and the grantor is required to relinquish control of such assets. It is important to note that it is best to transfer assets into asset protection.

Stephen J. Lacey
Stephen J. Lacey

irrevocable trusts when there are no known creditors. If a court finds that the transfers into the asset protection trust are made solely for the purpose of defrauding an existing creditor, the court may require such transfers be undone.

More: Thinking about a do-it-yourself estate plan? Think twice — and consider professional help

Medicaid qualification:

The need for a nursing home is difficult emotionally and financially. Planning ahead and utilizing an irrevocable trust can ease the financial burden. Under the terms of a Medicaid Irrevocable Trust, the grantor may maintain the right to any income generated by the assets of the trust but must give up the right to the principal (assets) of the trust. The trustee may gift assets out of the trust to designated beneficiaries, just not the grantor(s).

At this point, the beneficiary may utilize the gift to provide assistance to the grantor, but they are not required to do so. For instance, if a trustee gifts assets to a son who is a beneficiary, the son may then utilize the gift to provide assistance to his father (the grantor). It is purely at the discretion of the beneficiary. In order to maximize the benefit of a Medicaid Irrevocable Trust, the grantor should create and fund such trust five (5) years before the need for the nursing home, due to the Medicaid lookback period.

Several tools in the legal arsenal exist to protect your assets. Identifying the appropriate approach for your unique estate is essential. If your objectives are to minimize estate taxes, prevent creditors from imposing on your estate, or qualify for Medicaid, an irrevocable trust is certainly worth consideration.

Attorney Stephen J. Lacey is a managing member at the firm Lacey Lyons Rezanka. He can be reached at www.LLR.Law or by phone at 321-608-0890.

This article originally appeared on Florida Today: All I want for Christmas is an irrevocable trust: It's a lasting gift