You can change a revocable trust at will, so does that mean an irrevocable trust is permanent?
In this post, we discuss important things to know about irrevocable trusts and changing them.
What is an Irrevocable Trust?
An irrevocable trust is a legal tool that helps distribute assets after you die, like a will. However, unlike a will, you transfer the items into the trust, and they no longer belong to you.
Since the assets in the trust no longer belong to you, they are (usually) safe from creditors or other people trying to get them. People establish irrevocable trusts primarily to maximize the payout for their beneficiaries.
Can an Irrevocable Trust be Changed?
Contrary to popular belief, it is possible to change an irrevocable trust, but it's not easy. For the grantor’s life, the trust can even undergo revocation. However, the grantor usually can’t do this themselves.
The ability to change an irrevocable trust gets lost upon the grantor’s death.
How Do You Change an Irrevocable Trust?
To be eligible for future amendments, you must include written instructions when you create the irrevocable trust. These instructions should detail the specific conditions that allow the trust to be changed.
Some of the conditions include:
Birth or death of a family member
Changes in financial situations
Change in beliefs
Change in law or taxation
Designate a Trust Protector
One way to allow the amendment of a trust is to designate someone as a trust protector. This person will then be able to make certain changes to the trust.
Trust protectors can make changes based on the understood intent of the grantor. They have a lot of power and often have the authority to appoint different trustees.
Power of Appointment
Power of appointment is a legal designation made by the grantor of a trust. It gives the person ownership of the property within the trust and the right to say who it goes to.
Change it in Court
A court can also make changes to an irrevocable trust. Depending on your state, a court may allow you to change the trust in the event of errors or changes in circumstances (like a beneficiary dying).
Can You Terminate an Irrevocable Trust?
Fortunately, there are ways to terminate an irrevocable trust. In some states, the trustee can revoke it if its value goes below a specified dollar amount. The argument for terminating the trust is that the value has reached a level too low to be worth keeping it active.
The amount varies by state, but to be eligible to terminate an irrevocable trust in Florida, it must be with less than $50,000.
Why Would You Want an Irrevocable Trust?
An irrevocable trust is popular because it can benefit you and your loved ones in a few different ways.
Minimize Estate Taxes
During the life of an irrevocable trust, it gets taxed annually. Either the grantor pays the taxes on its behalf, or money gets deducted from its cash value. As a result, those that receive the contents of the trust don’t have to pay taxes on them.
Maintain Eligibility for Government Programs
It’s no secret medical bills and nursing homes are expensive. However, some government programs that help with these expenses, such as Medicaid, have income limits for qualification. Even if someone has enough money to cover health expenses, it would mean less property to leave to loved ones.
By transferring your assets to an irrevocable trust, you can still qualify for certain government programs while protecting assets for beneficiaries.
Irrevocable trusts are popular additions to estate plans to protect you and beneficiaries from creditors, lawsuits, and bad marriages.
Unfortunately, this isn’t foolproof. There are some scenarios in which creditors can still get their money. They may gain access to the trust by petitioning in court if they think you intentionally made the trust to defraud them out of a large sum of money. Also, depending on the language written into the trust, they may have the ability to take certain assets from beneficiaries as compensation.
Avoiding probate has a few advantages. When assets enter probate court, almost all documentation gets submitted into the public record. When this happens, anyone can find out what assets went to each beneficiary.
Next, avoiding probate with an irrevocable trust allows beneficiaries to immediately gain ownership of the property. Probate can be a lengthy process and tie up assets for over a year!
The last benefit to keeping assets out of probate court is that loved ones won’t have to pay court costs and legal fees associated with probate.
Need Help Changing Your Irrevocable Trust?
With any legal document, it is vital to ensure all your I’s are dotted and T’s are crossed.
Setting up an irrevocable trust can be complicated. To reduce the headache of trust creation and gain maximum benefit, contact our experienced estate planning attorneys today!