An overview of irrevocable trusts

On Behalf of | Jan 14, 2020 | Trusts

Nevada residents may be interested in using an irrevocable trust as part of their estate plans. An irrevocable trust is one that generally cannot be modified without the consent of all of its beneficiaries. Once an item is transferred to the trust, the trust obtains full ownership of that item. Irrevocable trusts offer a variety of potential benefits such as shielding assets from being seized to satisfy a judgment or as part of a divorce settlement.

Assets inside of an irrevocable trust are typically considered to be held outside of a person’s estate. Therefore, putting assets in a trust may help to minimize a potential state or federal estate tax bill. Keeping assets outside of an individual’s estate may make it easier to qualify for government benefits such as Medicaid. After the trust is created, it will be overseen by a trustee responsible for making decisions based on its language.

There are several different types of irrevocable trusts including the irrevocable life insurance trust, or ILIT, and the grantor annuity trust, or GRAT. An ILIT is funded by an insurance policy, and the goal is to transfer the policy’s death benefit to a beneficiary through the trust tax-free. The GRAT allows the grantor to contribute assets to the trust and receive an annuity payment in return. At some point in the future, the assets are transferred to a beneficiary.

With careful trust planning, it may be possible to obtain effective long-term asset protection while minimizing potential future estate tax bills. It may also make it easier for family members with special needs to obtain assets without jeopardizing access to government benefits. An attorney may be able to work with an individual or family to determine if a trust is necessary and what type of trust to create.