A living trust is a common addition to the average estate plan. If you are contemplating the creation of a living trust, you will need to decide if your trust will be a revocable living trust or an irrevocable living trust. As the name implies, an irrevocable living trust is one that cannot be modified or revoked by the Trustor once the trust is established. You may be wondering why you would want to make your trust irrevocable. The Grand Forks trust lawyers at German Law explain why you might want to make a trust irrevocable.
When Is Making a Trust Irrevocable a Good Idea?
Questioning the choice to make a trust that you cannot modify and can never revoke is understandable; however, there are situations in which an irrevocable living trust is necessary to achieve an important estate planning goal, such as:
- Medicaid Planning. Almost half of all seniors in nursing homes across the country depend on Medicaid to help defray the high cost of that care. Qualifying for Medicaid, however, can be problematic for a senior because eligibility is based, in part, on an applicant’s income and assets. If your non-exempt assets exceed the limit at the time you apply for Medicaid, you will be forced to “spend-down” those assets, which essentially means you must rely on the assets to help cover your nursing home costs until you deplete them. One way to avoid that outcome is to establish a Medicaid trust as part of a Medicaid planning component in your estate plan. A Medicaid trust is an irrevocable living trust that protects your non-exempt assets and allows you to qualify for Medicaid when you need it. The Medicaid program will only recognize the trust as a legitimate Medicaid trust if it is irrevocable.
- Asset Protection. Asset protection should be a consideration in every estate plan because there are likely more potential threats to your assets than you realize. Divorce, economic downturns, creditors, and even spendthrift beneficiaries can all create a threat to your hard-earned assets. By transferring assets into an irrevocable living trust, you remove those assets from your estate, thereby placing them out of the reach of the numerous threats that could be lurking around the corner. The concept is simple. If you no longer have any legal ownership interest in the assets because they are now owned by the trust, they cannot be lost to divorce, creditors, or any of the numerous other potential threats.
- Special Needs Planning. If you are the parent of a child with special needs, you already know some of the challenges faced when raising a child with special needs. You also probably already have some idea of the costs involved and the time needed. Consequently, for the parents of a child with special needs, estate planning takes on a heightened importance. While your child is a minor, obtaining assistance from state and federal programs such as Medicaid and Supplemental Security Income is crucial. Depending on the type and severity of your child’s disability, your child may continue to need that assistance as an adult. Unfortunately, the law considers your child a legal adult when he/she turns 18 which means eligibility for state and federal assistance programs will be based, in part, on your child’s income and assets. Though the income limits won’t be a problem, the asset limit could be if you, or another well-meaning relative, gift assets directly to your child in an estate plan or at any other time. Your child could lose his/her eligibility for much needed assistance. The good news is that a Special Needs Trust can help. A special needs trust is an irrevocable living trust that supplements the care and assistance that an individual receives from other sources. The trust must be irrevocable, however, for the state/federal government will recognize it as a special needs trust but if it is drafted properly, the assets held in the trust will not jeopardize the beneficiary’s eligibility for assistance.
Contact Grand Forks Trust Lawyers
Please join us for an upcoming FREE seminar. If you have additional questions or concerns about irrevocable trusts, contact the Grand Forks living trust lawyers at German Law by calling 701-738-0060 to schedule an appointment.