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What protections does an irrevocable trust offer?

On Behalf of | Nov 10, 2023 | Estate Planning |

An irrevocable trust is a powerful tool for asset protection and long-term financial planning. It’s not easily changed once it has been established, which provides a variety of protections for the assets within the trust. This is especially valuable in California, where estate planning can be complex due to the state’s unique laws and regulations.

Understanding how an irrevocable trust functions and the protections it offers is essential for anyone considering including one in their estate plan. The decision can significantly affect asset management, tax liabilities and legacy planning.

Asset protection from creditors and legal judgments

One of the primary benefits of an irrevocable trust is its ability to protect assets from creditors and legal judgments. Once assets are placed in an irrevocable trust, they are legally owned by the trust.

The separation of ownership means that if legal judgments or claims from creditors against the trustor occur, the assets within the trust are generally beyond their reach. This feature is particularly valuable for individuals in professions with high litigation risks.

Reduction of estate taxes

Another significant advantage of an irrevocable trust is its potential to reduce estate taxes. Since the assets in an irrevocable trust are no longer considered part of the creator’s estate, they are typically not subject to estate taxes upon the trustor’s death.

Medicaid eligibility and long-term care planning

Irrevocable trusts can also play a crucial role in Medicaid planning. By transferring assets to an irrevocable trust, individuals may be able to meet Medicaid’s asset limits. This strategy requires careful planning and timing because Medicaid has a look-back period during which asset transfers can affect eligibility.

Remember, an irrevocable trust is only one option for a comprehensive estate plan. Working with someone who knows your wishes and situation can help you make choices best suited to your circumstances.