Generally, trusts are either revocable or irrevocable. If you create a revocable trust, you maintain control over it by having the power to change the trust and appointing either yourself or someone close to you as the trustee. However, some individuals decide an irrevocable trust will better fit their needs.
Setting up an irrevocable trust is risky, as you will give up the power to alter the trust. Your trustee will also be someone not closely related to you, so your trustee might not understand your wishes as well as a family member. Still, as Kiplinger explains, there are some important benefits that people may reap from setting up an irrevocable trust.
Protecting your assets
You might work in a profession that is at a higher risk of lawsuits than other occupations. Health care providers and real estate developers generally fall into this category. If you fear another party could litigate you due to your job, you may want to protect your assets by placing them in an irrevocable trust. Since you no longer have control over money in an irrevocable trust, a judge is unlikely to award your creditors assets from the trust in a judgment.
Helping you with benefit eligibility
If you are nearing your retirement years, you might foresee that someday you will need Medicaid or Supplemental Security Income in the event you become disabled due to an injury or illness. You might not be eligible for these programs if you have too much money in income or assets. If you put away money in an irrevocable trust, it might lower your total number of assets so that you receive these benefits if you need them.
Reducing your estate taxes
Some people worry that the government will take too much from their estate in taxes after they die, which will deprive their heirs of some of their inheritance. To avoid this, you may set up an irrevocable trust that can get around estate taxes. A grantor retained annuity trust could provide you with an income for a number of years while passing on money to your children without paying estate taxes. You might also consider a charitable remainder trust to pay money to your children now and the remainder to a charity after your death.
