Creating a trust may be a part of your estate plans. Trusts generally fall into two different types, revocable trust and irrevocable trust. While revocable trusts can be beneficial, sometimes they do not offer the kind of asset protection that a trust creator wants. This is where an irrevocable trust may be of benefit.
With an irrevocable trust, you lose control over the assets you place in it. This means you should be careful about creating an irrevocable trust. But if certain life circumstances apply to you, you might find that an irrevocable trust will suit your needs.
Tax advantages
U.S. News and World Report explained that creating a revocable trust does not allow you to avoid paying estate taxes. The reason is that the assets in the trust are still yours, so the government will tax the assets just as it would tax money in your bank account. But since money in an irrevocable trust is not in your possession, you can take advantage of not paying certain taxes.
Creditor protection
If you work in a profession that presents a higher possibility of litigation than other occupations, you know that your assets are at risk from creditors if you lose a civil suit. However, creditors will not have an automatic claim to money you put in an irrevocable trust. At best, creditors will have to go through a lot of trouble to access the money, trouble that they may decide is not worth the effort.
However, you might have problems if you put money in an irrevocable trust when litigation is in progress. A court might rule that you have fraudulently transferred funds to avoid a court judgment. Setting up an irrevocable trust as early as possible may avoid this possibility.
Qualify for government programs
Irrevocable trusts may also benefit you in your older age. You might become disabled and require Medicaid or Supplemental Security Income for your care. However, you may have too much money to qualify for those programs. If you create an irrevocable trust within a certain timeframe, you could shelter some assets in the trust while lowering your asset threshold so you qualify for government assistance.