When making plans for your estate and how your affairs will be handled when you are gone, you will want to think carefully to choose an option that will best meet your needs. While many people are familiar with trusts, and trusts are growing in popularity over less secure wills, what many people are unaware of is that there are several types of trusts that you will have to choose from when planning your estate; these trusts generally fall under the categories of revocable and irrevocable trusts. With a revocable trust, changes and amendments can be made to the trust as long as you are of sound mental state. Additionally, with a revocable trust, you maintain control of the assets within the trust while you are still alive.
Alternatively, irrevocable trusts cannot be amended, modified, changed, or revoked except under rare circumstances. Additionally, once you have created an irrevocable trust you will no longer have control over your estate or the assets within them. You will essentially give control of your estate over to your designated trustee by creating an irrevocable trust. Considering that irrevocable trusts are ironclad and cause you to give up control over your hard earned assets, you may be wondering why people choose irrevocable trusts rather than a revocable trust. However, there are certain financial benefits that can be gained through an irrevocable trust. Here are just a few of the reasons why you might want to consider an irrevocable trust when planning your estate in Minnesota.
Protect Your Assets
One of the primary benefits of an irrevocable trust is that assets placed in an irrevocable trust have greater protection from creditors and people who may try to sue you. Assets placed in an irrevocable trust are technically no longer yours, as the trust is considered a separate entity from you. This means that if you are sued, or you file for bankruptcy, the assets within your trust will not be vulnerable. Alternatively, when you place assets in a revocable trust you still own them. Since you are the trustee during your lifetime, the trust becomes vulnerable in the event that you are sued for damages. This is why irrevocable trusts are particularly popular amongst individuals who work in fields where lawsuits are common, as an irrevocable trust will protect their estate.
Become Eligible for Government Programs
Irrevocable trusts can be beneficial for those who are disabled or ill and are looking for assistance from government programs such as Medicaid and Supplemental Security Income. These programs have strict income and asset guidelines that make people ineligible for these programs if their assets exceed the limitations. In cases where an individual has too many assets, they may have to deplete their estate in order to become eligible for government assistance. However, placing assets in an irrevocable trust (special needs or supplemental needs) are no longer considered the property of the individual who created the trust, these assets don’t count when determining eligibility for government programs assuming these type of irrevocable trusts are properly drafted and funded.
Minimize Estate Taxes
Another reason why irrevocable trusts are popular is that they can help to minimize the taxation your estate will face. Since assets in an irrevocable trust are no longer under your control, they are not subject to estate taxes as they are not considered part of your estate. This can be particularly beneficial for individuals with high-value assets as estate taxes can be as much as 40 percent as the value of the estate. By placing your assets in an irrevocable trust you will be protecting the value of your estate, helping to ensure that as much of it as possible goes to your designated beneficiaries.
While the ironclad nature of irrevocable trusts can initially seem off-putting, there are many unique benefits that this type of trust can provide. Contact us to learn more about trusts as well as for advice on determining what type of trust would best meet your needs. We have offices in Northfield, Keynon, and Minnesota.