An irrevocable trust requires extra advance planning

On behalf of Scaringi Law posted in Estate Planning on Monday, February 29, 2016.

If you’ve decided to create an irrevocable trust, smart planning is essential because any control over assets placed into the trust principal will be lost. Our estate planning law firm recommends several tips to proceed with confidence.

First, not every law firm may have insight into the financial aspect of estate planning. However, our attorneys also offer comprehensive services in the areas of probate and elder law, and we have relationships with financial advisors to help our clients make the most informed choices possible. Our broad practice areas are well suited to estate planning because an irrevocable trust causes an individual’s tax situation to change.

Specifically, an irrevocable trust is deemed a separate tax entity, so it will have to pay taxes on any income it earns. Even the choice of how the trust principal will be funded must be considered from a tax angle. For example, real property transferred into the trust receives a transfer of the donor’s cost basis, rather than the more favorable step-up in basis.

An irrevocable trust should also be planned in conjunction with estimating one’s retirement needs. Transfers into the principal of an irrevocable trust may come at the cost of reduced liquidity of one’s remaining personal assets. On the other hand, an irrevocable trust may be a way to protect assets from Medicaid or creditors. However, should Medicaid assistance needs arise within five years of the trust’s creation, there may be penalty consequences. Our website provides more context regarding irrevocable trusts, as well as advice on how individuals can approach estate and elder law planning in tandem.

Source: MarketWatch, “What you should know before placing assets in a trust,” Andrew McNair, Feb. 25, 2016