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Irrevocable Trusts for Estate Planning

Trusts can be powerful estate planning tools, enabling you to designate how your assets will be distributed upon your passing or incapacitation. A trust can help spare your loved ones the stress, confusion, and heartache of probate court by ensuring your wishes are upheld in your absence. Two types of trusts you may have encountered are revocable trusts and irrevocable trusts. While both can be used to facilitate your estate planning goals, they differ in a couple of important ways. 

From providing control over how your assets are distributed to helping manage the tax burden imposed on your beneficiaries, there are a number of potential advantages an irrevocable trust can provide. In this guide, we cover the basics of irrevocable trusts and outline reasons why you may consider utilizing one within your estate plan. 

What’s an Irrevocable Trust?

Once executed, these trusts are overseen by a trustee, and any modifications or amendments to the document must be approved by a beneficiary or a court order. Due to this inflexibility, irrevocable trusts tend to be used more frequently by those whose estates exceed the federal estate tax exemption – $12.92 million for individuals and $25.84 million for married couples filing jointly – and may therefore benefit from reducing the size of their taxable estate.1

Revocable Trusts 

Revocable trusts offer more flexibility with the ability to revoke or change the details of your trust at any point during your life. Unlike irrevocable trusts, the assets within a revocable trust remain part of your estate and are, therefore, subject to estate taxes. In addition, creditors may be able to access the assets in this type of trust in order to settle outstanding debts or cover legal obligations. Revocable trusts become irrevocable upon your death.

Why Consider an Irrevocable Trust?

Whether you opt for a revocable or irrevocable trust to facilitate your estate planning goals will be a function of your individual circumstances. If your estate is large enough, giving up control over some of your assets to lower your beneficiaries’ tax burden may be worth considering. 

Beyond protecting your beneficiaries from estate taxes and your assets from creditors, irrevocable trusts bring at least a couple more unique advantages: 

Capital Gains Benefits With the Step-Up in Basis 

When an irrevocable trust passes to your beneficiaries, they can receive a step-up in basis that adjusts the value of the inherited estate to its fair market price as of the date of your death. This can make irrevocable trusts useful tools for managing the capital gains taxes owed by your beneficiaries if they decide to sell inherited assets later on. Consult with a tax or financial professional for help determining whether you could use an irrevocable trust to manage taxes. 

Medicaid and Supplemental Security Income 

In addition to estate tax benefits, irrevocable trusts can also help your beneficiaries qualify for Medicaid and Supplemental Security Income. Irrevocable trusts can be used to shelter income and assets for benefit seekers who would otherwise exceed limits. 

Potential Risks to Look Out For

While irrevocable trusts can offer benefits for wealthy grantors seeking to protect their estates for their beneficiaries, they do come with some downsides. The most obvious drawback is that you can’t alter the terms once the trust is finalized. That means that once you appoint a beneficiary, a judge and the trustee are required to sign off on any changes. 

The terms on these legal documents can also be complicated and difficult to understand, often requiring the guidance of a professional to execute. In addition, you may have to file a separate tax return for your irrevocable trust and any income it earns may be subject to a higher tax rate. Be sure to consult with a tax or financial professional who can help you weigh the various legal and tax considerations associated with irrevocable trusts. 

Evaluate Your Estate Plan With a Financial Advisor

While they can be advantageous in some circumstances, irrevocable trusts aren’t for everyone. We can help you take a look at your financial situation to determine whether a trust could make sense for you and your loved ones. Reach out to us today to discuss how a trust may fit into your estate plan. Schedule your meeting here.


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1 (2023) Estate Tax. IRS,