An Irrevocable Trust is a legal document that is used to transfer property. In many respects it is similar to the Living Trust in that there are three “people” required to create this trust. Again, I say “people” because these roles can (sometimes) be played by fewer than three people. There is the Settlor, the Trustee, and the Beneficiary of the trust. The Settlor creates the Trust and transfers property into the Trust that the trustee holds title to, protects, and distributes to the Beneficiary according to the terms of the Trust. The Beneficiary holds equitable title and receives the benefit of the Trust.
The Trust is called an Irrevocable Trust because it is NOT revocable during the Settlor’s lifetime.
So what are these wonderful uses of an Irrevocable Trust? Well, here are a few great uses of Irrevocable Trusts.
Special Needs Trust
Well, often the Irrevocable Trust is used to protect means tested public benefits such as Supplemental Security Income (SSI), Medicaid, EBT or Food Stamps, and others. Here we would use a Special Needs Trust which is an Irrevocable Trust.
Irrevocable Life Insurance Trust (or ILIT)
Also, one may wish to use a ILIT which is a Irrevocable Life Insurance Trust. They may wish to use this type of Irrevocable Trust in order to keep the Insurance proceeds out of their taxable estate for Federal Estate Tax purposes. Please read more about this in my Blog here: https://myestate-plan.com/blog
Standalone Retirement Trust (or SRT)
The U.S. Supreme Court decided a case called Clark vs Rameker, and in that case the court held that inherited IRAs are not “retirement funds” within the meaning of federal bankruptcy law. What this means is that if you inherit an IRA, the IRA will be available to pay creditors’ should you have to declare bankruptcy. Moreover, the IRA is vulnerable and available to satisfy not only creditors, but also any potential lawsuit judgments, or other potential “predators”.
Because of this decision and potential ill effects of not planning your estate, I imagine you’d like to takes some steps to protect the inheritance you’d like to give to your beneficiary. We need to take some steps to make sure your beneficiary is protected from losing the IRA to bankruptcy, predators, lawsuits, or other creditors.
A Standalone Retirement Trust (or SRT) should be created.
Call today and let’s create your Estate Plan
Keep in mind that there are many legal twists and turns and other factors to consider before creating an Estate Plan. You should always consult an attorney to discuss all of your options. Please feel free to call me.