Irrevocable Living Trust – Key to Successfully Preserving Wealth
Irrevocable living trust is a powerful tool for families who want to protect property. Especially during the last phase of life, many people express an interest not only in protecting everything they have built but being able to give to heirs without worry of penalty. Today’s post talks all about the irrevocable trust and how it may be able to help provide protection for family and surviving spouses.
Trusts come in many varieties with different rules and stipulations but we are focusing on irrevocable living trusts because the benefits they provide in senior planning. You can learn more about the benefits of revocable trusts in this post.
What is an irrevocable living trust?
It is just as the name implies… a trust that, once created, can not be revoked. The grantor typically funds the trust with his or her own assets, then assigns a trustee to manage said assets. What makes this trust both unique and beneficial is that the assets move out of the grantor’s estate. Since all property now belongs to the trust, the trust pays income taxes for the assets.
The trust is protected from creditors and lawsuits that are filed against the trust’s beneficiaries and grantor. Like other trusts, at your death, the trust property pass immediately to your heirs without delay of probate court. Therefore, any beneficiaries will be afforded privacy since your affairs will be handled outside of court.
So, that still doesn’t cover how irrevocable living trusts can help.
Implications for Senior Care Planning
Once the trust is created, property in the trust is no longer owner by the grantor and, therefore, cannot be counted by Medicaid. Even though you no longer technically own assets in the irrevocable trust, you are still allowed to dictate how trust funds are used and those instructions will be outlined in the trust.
There are specific rules that Medicaid has for any funds that originate from a trust and go to someone who is receiving benefits for healthcare. Since this is a complicated instrument, it’s important to have a knowledgeable attorney and senior planning specialist go over your options.
Rights During Your Lifetime
Maintain current residence -- When drafted correctly, if your home is included in the trust, you are still allowed to reside in the home.
Capital gains tax exclusion -- Additionally, if the house is sold during this time, you’re also allowed to use a $250,000 for single individuals and $500,000 for married individuals capital gains tax exclusion.
Change an inadequate trustee – If created properly, the trust may give you a limited ability to change the appointed trustee if you are unhappy with their conduct.
Avoid Estate Recovery
As mentioned earlier, the trust allows your heirs to avoid probate which will save time and give your family privacy. By avoiding probate you will also avoid Medicaid recovery. That is how the state recovers funds from an individual who received benefits during their lifetime.
When executed properly, an irrevocable trust can serve to help preserve wealth for future generations. Before you make any decisions you should always consult your elder law attorney our senior specialists to ensure you are aware of all available options to you.
For more information: Contact Senior Care of Michigan below to speak with a Senior Planning Expert.