Do I Need an Irrevocable Trust?

A trust is a legal agreement that involves three people: the trust-maker, the trustee, and the beneficiaries. There are many types of trust agreement which vary depending on whether the trust-maker can change the terms of the trust, and whether the trust goes into effect during the trust-maker's lifetime, or after the death of the trust-maker.

An irrevocable trust is a legal agreement that cannot be amended or undone once created. An irrevocable trust cannot be changed or terminated without the beneficiary's permission.

Irrevocable Trusts Can Be Used for Tax and Estate Planning Purposes

An Ohio lawyer who practices probate and estate planning law might recommend that you use an irrevocable trust to reduce your taxable assets. By placing assets in an irrevocable trust, you will not be taxed on those assets. Likewise, you will not be taxed on income generated by trust assets. You can also use an irrevocable trust to take advantage of the annual gift exclusion (currently $14,000) by transferring funds into the trust each year, rather than making a single, large gift to a beneficiary.

Irrevocable trusts are also used to avoid some of the problems caused by an outright gift of money. If you make an outright gift of a large sum of money, the person receiving the gift could invest the money poorly, become estranged from you, spend all the money, or lose the money to creditors.

Under current law, a properly done irrevocable trust can help a person become eligible sooner for Medicaid coverage, and prevent an inheritance from being depleted by medical bills or long-term care. The trust must be in existence for 5 years for this purpose.

By using an irrevocable trust, you can make the gift but reduce the risk that the recipient will make poor decisions or squander the money.

Irrevocable trusts offers tremendous flexibility in terms of tax and estate planning. To take full advantage of an irrevocable trust, the trust agreement must be carefully written. Writing a trust agreement is not something you should attempt on your own. Instead, contact an experienced Ohio probate and estate planning attorney who can create a trust agreement that will meet your specific situation and unique needs.

Specific Types of Irrevocable Trusts

If you have beneficiaries who are not as financially sophisticated as you are, if your beneficiaries are under 18 years old, or if your beneficiaries have a disability, your Ohio probate and estate planning attorney might recommend a specific type of irrevocable trust that will further protect your assets.

Specific types of irrevocable trusts, like a Spendthrift Trust and a Special Needs Trust, are designed to distribute money to beneficiaries at specific times, while keeping the remaining funds inaccessible to the beneficiary, the beneficiary’s creditors, or the beneficiary’s caretakers.

Spendthrift Trust

Suppose you want to make a substantial gift to your grand-daughter, but she has a substance abuse problem and goes in and out of rehab. To prevent your grand-daughter from inheriting a substantial sum of money and blowing it all on drugs, you could place the funds in an irrevocable trust. This way, you can still make the gift, but your grand-daughter will not have access to all of the funds until she reaches a particular age, or until certain conditions you specify are met.

Special Needs Trust

Similarly, you might wish to make a gift to someone with a physical or mental disability who relies on Medicaid for medical care. Because Medicaid is only available to people with limited financial means, a substantial gift would disqualify this person from Medicaid benefits. However, there are many services that Medicaid does not cover, like travel, equipment, and certain health services. By establishing a Special Needs Trust, you can pay for these expenses without jeopardizing the beneficiary’s eligibility for Medicaid. If money is left in this type of trust upon the beneficiary's death, it is used to reimburse Medicaid for services rendered.

Questions About Irrevocable Trusts? Contact Wolfe Legal Services

Irrevocable trusts can be used for a variety of purposes, in a variety of situations. If you have questions about irrevocable trusts or think that you or your family might benefit from creating one, contact an Ohio estate planning and probate lawyer at Wolfe Legal Services today. I work with people throughout greater Columbus, including Dublin, Bexley, Upper Arlington, New Albany, Marysville, Hilliard, Delaware, and Newark, and throughout Franklin County, Delaware County, Pickaway County, Fairfield County, Union County, and Licking County. Call (614) 263-5297 any time or complete our online form.

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