Previous articles discussed Revocable Trusts for probate avoidance and estate tax planning. This article an- alyzes Irrevocable Trusts—living trusts that cannot be revoked or amended.
Sometimes an estate is so large that the Revocable Trust for tax savings is not enough. Then one might consider an Irrevocable Trust. The basic difference is that assets in a Revocable Trust still belong to the Grantor. Assets in an Irrevocable Trust no longer belong to Grantor (after any applicable time limitation has run). At death, the taxable estate includes all assets in which the decedent has an interest, including assets in a Revocable Trust, but not assets in an Irrevocable Trust.
Another purpose of Irrevocable Trusts is gifting or Medicaid Planning. The Grantor wants to give away property, but does not want the beneficiary to have access to the funds. The Grantor makes the gift to the Irrevocable Trust.
Another example is the Irrevocable Life Insurance Trust (ILIT). It is a gift of premiums, which results in a much larger benefit at death—the face amount of the policy. If one buys life insurance in his or her own name, it increases the taxable estate. If one buys it in an ILIT, it does not belong to the insured and is outside the insured’s estate.
Another common type of Irrevocable Trust is the Charitable Remainder Trust. A person places property into a trust for a charity. The Grantor retains a lifetime right of income or other benefit, and the assets belong to the charity in the long run. One receives an immediate gift tax deduction, receives lifetime income, and removes assets from the estate.
The Income Only Trust is an Irrevocable Trust used for Medicaid approval when the applicant’s income is too high to qualify. Rather than simply not qualifying for Medicaid when the applicant’s income is excessive, the trust is created, all income runs through the trust, the same amount is applied to care as would be without the trust, and the applicant qualifies for Medicaid.
Various types of Irrevocable Trusts may be useful for certain situations, but they should never be confused with Revocable Trusts.
Attorney Michael A. Pyle, of Pyle, Dellinger & Duz, PLLC. 1655 N. Clyde Morris Blvd., Ste. 1, Daytona Beach 386.615.9007. e-mail: mikep@pylelegal. com or website: www.pylelegal.com