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Making Sense Out of Dollars

Trust Me

Joel Lerner, Columnist
Posted 6/11/21

How Does an Irrevocable Trust Work?

An irrevocable trust typically transfers your assets out of your (the grantor’s) estate and potentially out of the reach of estate taxes and probate, but …

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Making Sense Out of Dollars

Trust Me

Posted

Part 7 of 11

How Does an Irrevocable Trust Work?

An irrevocable trust typically transfers your assets out of your (the grantor’s) estate and potentially out of the reach of estate taxes and probate, but cannot be altered by the grantor after it has been executed. Therefore, once you establish the trust, you will lose control over the assets and you cannot change any terms or decide to dissolve the trust.

An irrevocable trust is generally preferred over a revocable trust if your primary aim is to reduce the amount subject to estate taxes by effectively removing the trust assets from your estate. In addition, since the assets have been transferred to the trust, you are relieved of the tax liability on the income generated by the trust assets (although distributions will typically have income tax consequences). It may also be protected in the event of a legal judgment against you.

Robert Browning wrote, “Grow old along with me, the best is yet to be.” That statement may not be true for seniors since the best years may have already passed. No matter what any poet, orator, or sage may say, old age is still old age.

Someone once said that you know you are growing older when everything hurts and what doesn’t hurt doesn’t work. Older people are of interest to doc­tors and hospitals, real estate brokers, and travel agents, not always as people, but as sources of income. As your ability to earn money decreases, so too does your stature as a person.

Therefore, keep that money for yourself, having the knowledge that you are financially independent.

The word irrevocable has been bantered around as a way of sheltering assets from nursing home seizure. All too often I encounter situations in which older people (especially widows) are so concerned about the high cost of nursing facilities that they contemplate placing their assets, through an irrevocable trust, into the hands of their children.

The looming prospect of nursing homes and Medicaid payments only serves to complicate this already thorny matter. You probably know that certain laws have governed Medicaid since 1993. “Medicaid planning,” as some call it, is a set of loopholes that allow older people the means to avoid the cost of nursing homes.

Through various methods, these people give most of their assets to their heirs, thus making themselves eligible for government assistance. The ruling states that these gifts (set up as irrevocable trusts) must be given away at least 60 months before Medicaid takes effect. This time period is known as the “look-back period”, and if not properly executed, could yield severe penalties.

It is obvious that any trust should be set up by an estate attorney or one who specializes in elder care law that is sensitive to your needs. Interview several, and inform them about your estate. You may lack the legal knowledge, but certainly you can evaluate how comfortable you feel discussing family and financial matters with each lawyer. 

THOUGHT OF THE WEEK

A person begins cutting his wisdom teeth the first time he bites off more than he can chew.

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