An irrevocable trust is an arrangement where the person who is making the trust (the settler) is putting some or several assets aside into trust to be held for a beneficiary. So, the beneficiary will benefit from whatever the settler put into the Trust.The Trust will be managed by a Trustee. Settler, beneficiary, and Trustee can all be the same person, or they can all be different.
In an irrevocable trust, when you put the money into the trust, the assets don’t come back out. There may be some circumstances where the trust can be broken but the intent when creating a trust is that, for example, a house goes into the Trust, the house never comes back out; not until the trust is eventually dispersed in some way, usually after somebody has died. The house can be sold, a new house can be purchased, the money can be invested but with status within the trust and the trustee managing those assets. The trust becomes its own being will typically have to pay taxes on its own, not under these settlers’ social security number. It will get its own tax ID and will be responsible for its own taxes
The purpose of an Irrevocable Trust is typically going to be to create some type of protection. So these can be used for different creditor protection, potentially for protection for children’s assets for example, where the money is only distributed for College or at a certain age. Also, it is a good system to protect people benefiting from Medicaid. For example, if old parents end up in a nursing home and you want to protect the family home from Medicaid taking possession of it. The house can be put into a Trust outside the parents’ name, and a third party will manage the Trust. Or the parents can continue to live in the house but don’t have any rights or responsibility.
In an Irrevocable Trust, because you’re creating this separate entity, it is going to create tax ramifications that could be harmful because the trust tax rates could be different and are often higher than they would be for an individual
In a Revocable Trust, you’re not creating any tax issues because your assets are technically still in your name.Everything stays under your social security number or under your taxes, so you’re not going to be paying any extra taxes for that Trust.
Attorney Rachel Dodds, Estate Planning lawyer in Portage, Summit and Cuyahoga Counties, can help you gain peace of mind by securing these issues. Consulting with an experienced Estate planning lawyer is essential in making sure that your final wishes regarding your property, your loved ones, and your healthcare options are carried out.
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