When someone creates an irrevocable trust, they set up an arrangement where they lose ownership and control of their own property. Why would they do that? Different laws provide different benefits for those who establish irrevocable trusts. Some irrevocable trusts are designed to reduce tax liability. Some protect assets from creditors or support charitable organizations. Other trusts preserve property without interfering with the ability to receive public benefits such as NC Medicaid.
The experienced trust attorneys at Brady Cobin Law Group, PLLC help clients determine whether an irrevocable trust could fulfill their goals for protecting family members and preserving wealth. We also assist clients who have questions about managing irrevocable trusts.
Common Types of Irrevocable Trusts
One way to understand some of the benefits irrevocable trusts can provide is to look at a few of the different types of irrevocable trusts.
- Asset Protection Trust – Can protect property from depletion by medical expenses, divorce, lawsuits, bankruptcy, nursing home costs, or other factors
- Charitable Lead or Remainder Trust – Maximizes tax savings while supporting charitable causes
- Education Trust – Provides education funding for children or grandchildren
- Pet Care Trust – Provides funds for care of horses or household pets
- Qualified Terminal Interest Property Trust – Protects assets for children from a previous marriage
- Special Needs Trust – Provides funds for an individual with special needs without affecting eligibility for government benefit programs
- Spendthrift Trust – Protects property of individuals who are still developing their money management skills
- Trust for Minors – Holds assets for minors until they are old enough to legally own property
This is just a small sample of trust options available.
How an Irrevocable Trust Operates
A trust is a legal arrangement that splits up some of the features that go along with property ownership. The person who creates the trust and donates property into the trust to fund it is usually known as the grantor. The person who receives benefits from the property is, appropriately enough, the beneficiary. While the beneficiary enjoys the use and proceeds of the property, the property technically does not belong to them but to the trust. In an irrevocable trust, the beneficiary generally has no control over how the property is managed.
Instead, that control rests with a third individual or entity known as the trustee. A trustee has a fiduciary duty to make decisions in the best interests of the beneficiaries. While the trustee controls the property, they do not own it and they are not supposed to receive the benefits from it, although they often receive some compensation for their management efforts.
The terms of the trust document determine how the beneficiary receives money or other property from the trust. They might receive a certain amount each month, they might have to request money to pay for specific items, or the money may be paid directly to an educational institution or for another specific purpose. Because the property belongs to the trust rather than to the grantor or the beneficiary, these parties may enjoy financial benefits such as a reduction in taxes or eligibility for means- tested public benefits.
Learn More About How an Irrevocable Trust Could Benefit Your Family
Irrevocable trusts can be simple or complex, and they may contain assets of an infinite variety. They function best as part of a comprehensive estate plan, but a knowledgeable trust attorney can set up or assist with management of any type of standalone trust as well.
At Brady Cobin Law Group, PLLC, we invite you to review your goals with us so we can determine whether an irrevocable trust is right for your situation. To set up a consultation, contact us today.