Pros and Cons of an Irrevocable Trust
Estate planning isn’t one-size-fits-all. What estate documents you need will depend on your unique situation. You might know that everyone should have a will, but you may be considering whether or not a trust would also benefit you. Not only do you have to determine if a trust is right for your estate plans, but you also have to decide whether a revocable or irrevocable trust fits your needs. With a revocable trust, you can change the terms at any time, while an irrevocable trust requires you to give up ownership of assets in the trust and cannot be modified without your beneficiaries’ consent.
With less control over an irrevocable trust once it’s been created, you may wonder what benefits one has over a revocable trust. Irrevocable trusts have their advantages and disadvantages, so you need to know what reasons there are to choose one and why they might not be for everyone in certain situations. At Mazzoni Karam Petorak & Valvano, our estate planning attorneys can help you decide if an irrevocable trust is right for you.
Pros of Irrevocable Trusts
One of the main reasons someone may create an irrevocable trust is that it can help them save on estate taxes, which is an important benefit for those with large estates. Assets placed in an irrevocable trust are not part of the estate, so they are not subject to estate taxes. This means that these assets can still be passed to beneficiaries without being diminished by taxes, so they’re beneficial tools for wealth preservation.
Qualifying for Government Programs
As placing assets in a trust would require the creator to give up ownership of them, these assets are no longer considered their property. This is important for those who depend on government programs, such as Medicaid. These programs have many limitations regarding a person’s income and assets, so if an individual has too much in assets, they may not qualify. Moving assets to a trust can make them eligible for these programs.
Some may be worried about their assets being diminished by creditors, reducing the amount their beneficiaries receive. However, assets in an irrevocable trust are no longer owned by the creator, so these assets are protected from their creditors. This is also beneficial for those in positions where they are more likely to face lawsuits, such as doctors.
Cons of Irrevocable Trusts
Of course, one of the major drawbacks of irrevocable trusts is that they don’t offer the flexibility that revocable trusts do. If the trust needs to be modified, you can’t do so without permission from all of the beneficiaries of the trust. In some cases, an irrevocable trust may never need to be modified, but if it does, it’s much more complicated than having a revocable trust.
Circumstances Can Change
Being required to give up ownership of assets placed in a trust could be a deterrent for many people. You never know what may happen and what changes occur in your life. If you experience financial hardships, you may find yourself needing the assets you placed in the trust. Likewise, your relationship with beneficiaries may change, and you may no longer want them included in the trust or doubt their financial responsibility. Should anything like this occur, an irrevocable trust could cause complications.
Talk to a Scranton Estate Planning Attorney Today
Irrevocable trusts are complicated, and if you’re interested to see how one can benefit you, you’ll need to consult with an experienced estate planning attorney. You want the confidence in knowing that your assets will be protected and your beneficiaries are financially provided for, and Mazzoni Karam Petorak & Valvano can help. We’ll work with you to ensure that your estate plans are exactly what you and your loved ones need.
Contact us today to set up a consultation to discuss your estate plans.