One misconception about trusts is that only the extremely wealthy benefit from creating them. The truth is that trusts are a great estate planning tool for those in a wide range of situations. For example, trusts can help you ensure that your disabled child will always be provided for.
The most common form of living trusts is a revocable living trust. A revocable living trust means that the person creating the trust can maintain control of the assets held within the trust for the duration of their lifetime. Irrevocable trusts, in contrast, involve the trust creator giving up all rights to the assets held within the trust upon its creation.
What are the benefits of irrevocable living trusts?
It may at first seem counter-intuitive to create an irrevocable living trust; however, there are several benefits to doing so. One of the reasons why people create irrevocable trusts is so that they can benefit from a tax perspective. By putting a portion of their assets in an irrevocable trust, they will be able to save on capital gains taxes.
Assets in an irrevocable trust are also protected because they are shielded from creditors, liens and divorcing spouses. This means that you can be confident that the assets held within the trust will be used for their intended purpose.
Irrevocable trusts are particularly suited to helping the grantor obtain long-term care. If an estate planner places assets into an irrevocable trust, they will be able to gain Medicaid benefits when moving into a nursing home.
If you are interested in creating an irrevocable trust, you should consider how you would like to incorporate it into your estate plan.