Revocable vs. irrevocable trusts ? know the difference | Fincance ...

In working with Medicaid structuring and estate planning, the subject of trusts and their uses often arises. Trusts are not an easy subject to understand. there are different kinds and the laws and regulations keep changing.even when we have the right answers, Congress or a state legislature or a court decision may disrupt everything and it is time to start over again.Here are some general ideas to navigate the difficult subject of trusts.Revocable vs. Irrevocable TrustsA revocable trust, as the name suggests, can be changed by the person (the ?settlor? or trust maker) who made it.after drafting, executing and funding the trust, the trust maker can change his or her mind about the terms or discontinue the trust entirely. Because the trust can be changed, for tax purposes and for many other purposes, a revocable trust is treated generally as though the settlor did not give the assets away in the first place.A revocable trust does not save federal estate taxes unless it is drafted with the same kind of language and terms that would be used in a will and, besides, at a $5 million unified credit, few people pay federal estate taxes now anyway.for long-term care, assets are still generally considered available. In other words, revocable living trusts do not help for Medicaid planning.Having said this, it might be wondered why people use revocable living trusts. there are several reasons to use a well-drafted and properly funded revocable living trust. They may not be the reasons that readily come to mind.it is also important to use a reputable practitioner in the field and not just one of the ?trust mills? churning out documents without regard to individual needs.Probably the most important reason to set up such a trust is to have a mechanism in place that can manage and can continue when one or both of the trust makers become disabled.even where people appoint themselves as trustees of their own living trust, such as Mary and Thomas Jones, trustees of the Jones family trust, with their grown children or a financial institution as successor trustees, working on the drafting of such an engagement can force them to think through what they really want. where real estate in different states is involved, a trust might accelerate settling an estate.Some of the same things that can be done with a living trust can also be done with a durable financial power of attorney and a will. So, when questioning which is better to use in an individual case, it is best to get expert advice.an irrevocable trust, as the name suggests, is one that, once established and funded, cannot be changed. Setting up an irrevocable trust is a lot like giving the assets away and is similarly treated for tax and other purposes.Here are some reasons for establishing an irrevocable trust.? Creditor protection ? if assets are given away directly, they may be subject to the claims of creditors or potential creditors of the trust beneficiaries. Giving the assets to a trust, if properly done, can in some cases, insulate the assets from claims against the trust beneficiaries and preserve available funds.? Tax structuring ? Some irrevocable trusts such as those gifting through a trust to minors either generally or for specific purposes and specialized trusts benefiting charities may have significant tax benefits.? Irrevocable income-only trusts ? These trusts may be used in connection with Medicaid structuring and have various names. Sometimes referred to as a Medicaid intentionally defective grantor trust, or MIDGT or an IIOT, generally they should be considered only where there are enough assets or resources in addition to those being placed in trust to carry the trust maker through five years of nursing home care. it is assumed in settling up the trust that the trust maker will initially be paying for his or her own care. the MIDGT is to protect additional assets when there is longer-term care over five years.Long-term care insurance can be combined with a MIDGT especially if it can carry through five years. We can put the plan together the same way but with insurance.Finally, there are other successful strategies even under the new Medicaid laws to deal with Medicaid and the five-year lookback than trusts. Discussion of these, especially for spouses, would take more than this column but the important point is to get professional advice when help is needed.Janet Colliton is a West Chester attorney whose practice is limited to elder law and estates. She is a principal of Colliton Law Associates PC and, with Jeffrey Jones, CSA, of Life Transition Services LLC. questions may be directed to 790 E. Market St., Suite 250, West Chester, PA 19382, or to 610-436-6674 or colliton@collitonlaw.com.

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Revocable vs. irrevocable trusts ? know the difference

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