Estate plans include many different pieces. Most include wills, powers of attorney and living wills. Many also include revocable living trusts, especially if one of your goals is avoiding probate. However, another tool available is the irrevocable trust. There are many situations where irrevocable trusts can be beneficial and, depending on your needs and your goals, looking into the uses and advantages of these trusts may be worth your while.
If you are familiar with the use of trusts in estate planning, chance are that you are aware of revocable living trusts. These trusts can be very helpful to many people. If you want to avoid the potential delays, expenses and stress of the probate administration process, then a revocable living trust may be a worthwhile component of your estate plan. Additionally, if you are interested in planning to minimize the chance of having an unwanted conservatorship filed over you and your assets, then a living trust may be beneficial in this regard, as well, as living trusts allow for the transfer of the management of your wealth from you to the person you chose when you created your trust, not someone that a judge picks.
However, revocable living trusts are not the only worthwhile type of trust when it comes to estate planning. While revocable trusts allow you to maintain total control over the assets in them, in some circumstances, this degree of control is a drawback instead of an advantage. For these situations, there is the irrevocable trust. Irrevocable trusts can help you with planning for death taxes. If you think you may be facing a federal estate tax liability, there are various trust options out there to help. One is the irrevocable life insurance trust (ILIT). In this situation, you can purchase a life insurance policy that is owned and held by the ILIT. The death benefit proceeds from a policy held by your ILIT do not count as part of your gross estate when it comes to calculating estate taxes, whereas if the policy was held in your name instead of a trust, the proceeds would count toward your total estate, meaning you'd have a greater estate tax bill.
Another area where irrevocable trusts can help is if you have a child with special needs. Many people with special needs often rely upon government benefit programs that impose, as an eligibility requirement, a needs-based standard for qualification. If you leave money outright to your child with special needs, this could result in your child being financially disqualified to continue receiving benefits. Assets placed in a properly structured irrevocable special needs trust, however, do not qualify as assets controlled by the person with special needs and will not trigger a disqualification.
While the use of irrevocable trusts in planning for death taxes or for children with special needs is somewhat well known, there are still other, often less well known, circumstances where an irrevocable trust can help you. One example is if you have a child or grandchild for whom you are saving money for college. In some states, if someone gets a legal judgment against you, that creditor can seize the money in the 529 college savings account you've put away for your child or grandchild's education. However, if you set up an irrevocable trust with the college savings plans owned by the trustee whom you named to manage the trust, then that money is generally protected from judgment creditors.
These are, of course, only a few example of how irrevocable trusts can help meet some specialized needs within estate planning. There are many more ways that irrevocable trusts may possibly be a useful piece in your estate planning puzzle. Your estate planning attorney can help you determine what tools you need to achieve your goals in the best way possible.