Updated: May 21, 2022
Living trusts perform important functions for many estate planners. Trusts can take the place of Wills (Last Will and Testament), but they can also allow grantors (creators of trusts) to tailor asset distributions to beneficiaries. There are many types of trusts available for Arizona estate planners; depending on your goals, you might create multiple trusts. Living trusts, which are trusts that become active during the life of the grantor, can be classified as either revocable or irrevocable.
Revocable trusts allow the grantor to maintain control over the trust’s assets while he or she has capacity even though the trust is the legal owner of the assets. Conversely, while irrevocable trusts may still be classified as living, the grantor cedes a significant amount of control over the assets funded into the irrevocable trust.
So, why would anyone choose an irrevocable living trust over a revocable living trust? There are a few reasons.
- Irrevocable living trusts can help you plan for Medicaid. Due to the high costs of staying in nursing homes and other long-term care facilities, many people rely on Medicaid. However, the assets you own must not collectively exceed a certain amount. To avoid becoming destitute for the purpose of qualifying for Medicaid, Arizonans can transfer assets into an irrevocable living trust, as the assets contained in this type of trust do not count toward the Medicaid limit.
- Irrevocable living trusts can help with taxes. Arizona does not have an estate tax, but there is a federal threshold of $11.7 million per person. Assets transferred to an irrevocable trust do not count toward the federal limit, which can help beneficiaries of especially large estates receive a greater portion of the estate. In some cases, transferring appreciating assets into an irrevocable living trust can help grantors minimize capital gains taxes.
- Irrevocable living trusts can help shield assets from creditors. If you’re afraid of being pursued by creditors, an irrevocable trust can protect your most important assets from being seized. Because you relinquish control over assets you fund into an irrevocable trust, creditors are prohibited from seizing those assets to satisfy judgments. However, creating irrevocable trusts for the sole purpose of protecting assets from creditors is not allowed.
Revocable or Not, Trusts Can Be Incredibly Useful
While irrevocable trusts have several benefits over revocable trusts, grantors relinquish control over the assets contained in irrevocable trusts. For that reason alone, many estate planners prefer revocable trusts. Life changes, and revocable trusts allow grantors to shift estate planning priorities as needed. Both types of trusts allow the family members of the grantor to avoid probate for the assets funded in the trust. Additionally, revocable and irrevocable trusts can ensure that trustees can maintain assets if the grantor loses capacity.
Let Us Help You Figure Out an Estate Planning Strategy
Despite what you may have heard, trusts are NOT only for the rich and famous. Wills are often the foundation of estate plans, but trusts can be important supplements. The best way to ensure your estate plan works for you and your family is to speak with an experienced Arizona estate planning attorney. Monahan Law Firm is here to help meet your legal needs and secure the future for your family. Contact us today to set up your initial consultation.