As you create your estate plan, you want to make sure your heirs don’t lose your inheritance to taxes and creditors. When you have a lot of assets, estate taxes and lawsuits can threaten your wealth. To keep your property away from these threats, you may choose to use an irrevocable trust.
Irrevocable trusts can protect your property. They shelter assets so you can pass them on to your heirs. But different types of irrevocable trusts can offer you different benefits.
Creating an irrevocable trust
As their name suggests, irrevocable trusts cannot change once you create them. You place ownership of your assets into the trust, removing them from your estate. You also name beneficiaries who receive your assets once you pass away. Your heirs receive your inheritance through the trust.
Benefits of irrevocable trusts include avoiding taxes and creditors
Since the trust reduces your estate’s value, you gain certain tax advantages, including avoiding estate taxes. The trust also protects your assets from any legal actions. If someone tries to sue you or collect on a bill, a judge can’t order you to pay them out of your trust.
You might also use an irrevocable trust to help you qualify for Medicaid benefits. To receive government benefits for long-term or nursing home care, you cannot have a lot of assets. By placing your property in an irrevocable trust, you appear to have less wealth than you actually do.
Different trusts offer different benefits
Not all irrevocable trusts are created equal. You can make one that holds life insurance policies on you. Or you can create one that pays you annuities for a certain amount of time. You can even use one to leave your money to charity. Or you can use your will to create the trust when you pass away.
Once you pass away, the trust will distribute your assets to your heirs. You can ensure that the bulk of your wealth goes to the people you choose to receive it.
A trust can be a useful tool in an estate plan
An irrevocable trust can offer you different ways to protect your assets. If you worry about losing your wealth to taxes or creditors, you might consider making one part of your estate plan.