Matthew T. Kikta, Esquire
Julian Gray Associates
Many prospective clients that come to our firm for their initial meeting often do so with preconceived notions regarding trust law and design. These notions sometimes cause undue stress and hesitation for our clients, when considering a trust for their estate plan. Most common misconceptions relate to the functionality and limitations of an Irrevocable Trust. For some, the word “irrevocable” may imply that the trust terms or beneficiaries may NEVER be changed. Or, that the Grantor(s) will NEVER have access to or control over the funds placed within an Irrevocable Trust. These assumptions are simply untrue, and may ultimately become an obstacle for a prospective client, whose lifestyle and estate plan would otherwise benefit from the use of an Irrevocable Trust.
Generally, there are two basic types of “Intervivos” trusts (living trusts) that are available to the prospective estate planner: Revocable and Irrevocable. The decision of which trust design to choose is based on numerous factors including but not limited to the age of the client(s), possible tax implications, future asset vulnerability to nursing homes and the overall motivation of the client to seek counseling from an Elder Law Attorney.
A Revocable Living Trust may be suitable in several situations. If a client is younger in age, possibly still working and wishes to retain direct control over personal assets, a Revocable Living Trust may be the appropriate planning device. The Revocable Living Trust would allow the client to retain direct control over assets, while ensuring a level of protection. Assets placed into the Revocable Living Trust, would also avoid probate proceedings upon the passing of the Grantor(s) as well. The Grantor also possesses the power to unilaterally augment or revoke the trust, which many find appealing when creating an estate plan. It must be noted, that the Revocable Living Trust falls short for clients that have serious federal estate tax issues or have concerns about protecting their assets from costly nursing home fees.
An Irrevocable Trust may be the more appropriate document for clients looking to achieve a more protective approach in their estate planning. An Irrevocable Trust is a great option for older clients that live comfortably on their monthly income, and only occasionally need financial supplementation from their assets. Like the Revocable Trust, an Irrevocable Trust avoids probate proceedings. Depending on how the trust is drafted, an Irrevocable Trust may allow for the beneficiaries to avoid capital gains taxes or other forms of taxation upon the death of the Grantor(s). The Irrevocable Trust may also allow a client to be eligible for government benefits such as: Medicaid or Aid and Attendance (for veterans), that the client otherwise would have been “over resourced” for and unable to qualify from a financial standpoint. For potential clients concerned that their assets are exposed to nursing home spend down, planning ahead of time and using an Irrevocable Trust may protect the assets for which they have worked their entire lives. While there are more restrictions placed upon the Grantor(s) of an Irrevocable Trust, the client can still retain an appropriate level of control and indirect access to their assets and estate planning decisions. In reality, an Irrevocable Trust provides a level of protection that a Revocable Trust could never deliver. Additionally, the small sacrifices by the Grantor(s) of an Irrevocable Trust are typically outweighed by the benefits and protection that such an estate plan can afford.
When contemplating your estate planning strategy, it is important to understand exactly how these documents function. Thus, meeting with a skilled Elder Law Attorney who understands this complex area of law is as essential to the planning process as executing the documents themselves. One must consider numerous factors including asset details, the planner’s lifestyle, and the rule of law before choosing the correct and most appropriate planning device. However, rest assured that there is nothing to fear in regards to an Irrevocable Trust. The Irrevocable Trust may not only be the right plan for you, but also be the unsung hero for your beneficiaries someday.