What is an irrevocable trust?

One might argue that an irrevocable trust solves most of the issues of a will and a revocable trust, with only one drawback: the trust is irrevocable. An irrevocable trust is the same as a revocable trust except that once the assets are put in the trust, they are no longer owned by the grantor. If done correctly, the grantor has no direct control (except some limited control allowed by the courts) over the assets. Basically, the grantor creates the trust documents describing the rules surrounding the assets and the beneficiaries, makes a completed gift to the trust. The trustee then manages the assets in the trust using the grantor’s instructions.

What are the advantages of an irrevocable trust?

Estate planners use the irrevocable trust to accomplish a myriad of goals employing many different types of irrevocable trusts. The irrevocable trust has all of the advantages of a revocable trust, but, since it is a completed gift, offers several different types of protection from creditors during the grantor’s lifetime and until the trust ends.

Because the grantor cannot directly control the assets in the trust, neither can the grantor’s creditors (subject to “look back” periods). If a grantor should be sued, the successful plaintiff cannot attach assets in the trust because the grantor does not own them and cannot directly control them.

Similar to the revocable trust, when the right language is used, the assets are safe from attacks on the beneficiaries‘ assets also. Several irrevocable trusts offer a reduction in estate tax also. Because the government allows a lump sum exempt gift, then the gift can be made to the trust. The government also allows a yearly gift that can also be made to the trust. Because both of these gifts are completed gifts, the death of the grantor does not trigger estate tax.

Placing a business in an irrevocable trust can also be advantageous. If the business is gifted into the trust when it is valued at less than the gift tax exemption limit, it will avoid the gift tax as well as the estate tax regardless of how large or successful the company may become while inside the trust. Again, this is because the gift was “completed” when the value was low.

Another advantage of an irrevocable trust is that it is not subject to the Medicaid spend-down amount (subject to a “look back” period). Because the grantor does not own the assets, they may qualify for Medicaid thereby protecting those assets for the beneficiaries. Many, many other types of irrevocable trusts accomplish different objectives and one should consult a professional to make certain you are executing a trust document correctly.

Protect your assets for yourself and your children and beneficiaries and avoid tax dollars. Assets can be protected from frivolous lawsuits while eliminating your estate taxes and probate, and also ensuring superior Medicaid asset protection for both parents and children with our Premium UltraTrust Irrevocable Trust. Call today at (888) 938-5872 for a no-cost, no obligation consultation and to learn more.

Rocco Beatrice, CPA, MST, MBA, CWPP, CAPP, MMB – Managing Director, Estate Street Partners, LLC. Mr. Beatrice is an “AA” asset protection, Trust, and estate planning expert.

A prospective client had very active toddler that was involved in a two-toddler pile-up while in a waiting area. His child, who was most likely to blame for the tangle mass of toddlers on the floor, came out unscathed. The other toddler, however, received a minor injury that, at first, appeared much worse. His first thought was that kids will be kids, but then it struck him, what if the injury wasn’t minor. Although there was nothing out of the ordinary about the children playing, a jury would certainly award the family of an injured toddler a fair to extraordinary amount of money. Where would he get that money? What happens when his kids are older and can accidently inflict more damage? What happens when they start to drive?

The Problem with Umbrella Insurance Policies:

The problem with umbrella policies and insurance policies in general is that the insurance may invite the very lawsuits they mean to protect against. When an injured person approaches a lawyer, the lawyer listens to the case to see if the case contains a kernel of merit. If it does, the very next thing a lawyer will determine is if he can get paid. Most lawyers in lawsuits get paid a commission based on the settlement or judgment amount. If the person potentially being sued is poor, meaning they have no assets, the lawyer will deem them “collection proof” and ask that the injured party pay a hefty retainer to take the case. The injured party may not have the funds or may not want to spend the money if there is no guarantee to collect something in the end.

On the other hand, if the lawyer discovers a two million dollar insurance policy and thinks he or she can settle it or get a judgment, the lawyer will gladly take the case on a contingency. That large insurance policy may look like a pot of gold to the lawyer causing them to chase it in the hopes of getting a big return on their efforts. Even if the case is frivolous, the lawyer knows he may be able to get a quick settlement, take his cut and go home happy.

The Benefits of the Irrevocable Trust vs the Umbrella Insurance Policy:

The irrevocable trust solves the greedy lawyer problem. “An irrevocable trust, when done correctly, can not only insulate one’s wealth from an outside attack, but can prevent the attack in the first place and, as a bonus, protect and distribute your wealth to future generations estate tax and probate free,” exclaims Mr. Beatrice. With an irrevocable trust, wealth is transferred into the trust and out of an individual’s estate. This means that the individual does not own any assets in the trust. Those assets are property of the trust and managed by a trustee. When the greedy lawyer looks at the potential defendant’s estate, the lawyer determines that they don’t own anything and probably will not take the case because even if they will win the case, they aren’t going to easily collect.

“The irrevocable trust deters frivolous lawsuits. No lawyer wants to work for free. Even if they take the case and win, they can’t collect, because the trust owns the assets. It’s like trying to collect a debt from your neighbor that is owed to you by your brother. You just can’t collect,” explains Mr. Beatrice. The problems some have with irrevocable trusts are associated with control. Some people may not like the trustee controlling their assets, but most irrevocable trusts don’t affect the day-to-day life person transferring their assets. They get up in the morning, do the same things they usually do, but their assets are safe.

Irrevocable Trust Must be Drafted by Someone with Years of Experience:

“Irrevocable trusts are wonderful for all the things that they do, but they don’t work if they are not drafted in specific ways for specific purposes. There are thousands of cases where inexperienced lawyers and estate planners have drafted poorly written trusts, given bad advice, or did not follow up after the trust was enacted. To utilize the powerful protection benefits of an irrevocable trust, it is best to go to a person or organization with years of experience and a proven track record,” warns Mr. Beatrice.

An umbrella policy can protect assets, but doesn’t stop the underlying lawsuit and may actually encourage it. “The time and stress involved in a having to negotiate, testify, answer interrogatories, produce documents and just generally thinking about a lawsuits isn’t worth it to me,” reveals Mr. Beatrice. “A good, solid and proven irrevocable trust, such as the Ultra Trust® gives peace of mind, deters lawsuits and provides for family and future generations.”

The three exceptions of the division of third-party property or assets in divorce cases.

There are three major exceptions to the rule against the division of third-party property. The first exception allows the court to divide such property or assets if one or both spouses own an equitable interest in it, even if legal title remains with the third party. In other words, if the shares of the third party legal entity are owned by either spouse, the shares can be considered part of the marital estate and divided. E.g., Upchurch v. Upchurch, 122 N.C. App. 172, 468 S.E.2d 61 (1996).

The second exception allows the court to divide the property or assets that was formally owned by the parties, and an improper or fraudulent conveyance of assets occurred. (i.e. there was no consideration given for the assets transferred.) The most common case is when the court rescinds an improper transaction made for the purpose of depriving the spouse of marital property rights without proper market value consideration for the assets in question. E.g., Firmani v. Firmani, 332 N.J. Super. 118, 752 A.2d 854 (App. Div. 2000); Buchanan v. Buchanan, 266 Va. 207, 585 S.E.2d 533 (2003).

The third major exception allows the court to divide the value of the asset or property if it was dissipated by one spouse in anticipation of divorce, even if the conveyance itself remains valid unless the asset paid in consideration for the transferred asset is transferable to the spouse. E.g., Breitenstine v. Breitenstine, 62 P.3d 587, 592-93 (Wyo. 2003). Continue reading: Parallel Irrevocable Trusts in Marriage & Divorce

Rocco Beatrice, CPA, MST, MBA, Managing Director, Estate Street Partners, LLC.
Mr. Beatrice is an asset protection award winning trust and estate planning expert.