Irrevocable Trust FAQs

A revocable living trust would be an alternative to an irrevocable trust, and the fact that you would retain the right revocation can be comforting. You would act as the trustee if you have this type of trust, so you would have complete control of the assets while you are living.

In a real sense, nothing would change with regard to your ability to access the assets without going through a middleman, and there would be no supervision. This is great on the one hand, but on the other hand, the assets would still be in your possession from a legal perspective.

There are reasons why people want to surrender incidents of ownership. This is a fancy term for the act of removing assets from your own name.

Yes, high net worth individuals that are exposed to the federal estate tax and/or state-level estate taxes use irrevocable trusts of various kinds to gain estate tax efficiency.

This being stated, this is not the only reason why you may want to use this type of trust.

Generally speaking, the answer is no, but there are some exceptions to the rule.

The terms of some irrevocable trusts allow for modification of the terms by the trustee or the beneficiaries. Charitable trusts often contain provisions that allow for modifications to adapt to changes to relevant laws.

A trust can be constructed to allow a trust protector to be engaged by the beneficiaries, the trustees, or a court. This would be an independent third-party that would assess the circumstances and make decisions about a proposed change in the trust terms.

When an irrevocable trust is being created, it is possible to give the beneficiaries or the trustee a power of appointment that would allow for changes to the trust terms.

One very common reason why you may want to use an irrevocable trust is to aim toward future Medi-Cal eligibility. More than one third of senior citizens will require nursing home care eventually, and Medicare does not cover the custodial care that these facilities provide.

Since nursing homes cost over a hundred thousand dollars a year, this gap is a very big deal. Medi-Cal will pay for long-term care, so many people seek eligibility late in their lives.

In order to get assets out of your name with Medi-Cal eligibility in mind, you could convey them into an irrevocable trust. You would not be able to touch the principal and you could not act as the trustee, but you could receive income that is generated by assets in the trust.

If and when you apply for Medi-Cal, you could no longer receive the income, but the principal would not count. However, you have to fund the trust at least 30 months before you apply for Medi-Cal coverage.

People also use irrevocable trusts for special needs planning purposes. A significant percentage of people with disabilities rely on Medi-Cal and Supplemental Security Income. An improvement in financial status can potentially cause a loss of eligibility.

The person with a disability or a third party can convey assets into an irrevocable supplemental needs trust to preserve benefit eligibility. Assets in the trust would be used by the trustee to improve the beneficiary’s quality of life in many different ways.

Another type of irrevocable trust that can be very effective if you are a parent that is getting remarried is the qualified terminable interest property trust. If you pass away before your spouse, they would receive income that is generated by assets in the trust for the rest of their life.

You could instruct the trustee to provide portions of the principal on a discretionary basis if this is your choice, and your surviving spouse would be able to use property that is owned by the trust.

Though your spouse would be well provided for, they would not be able to change the terms of the irrevocable trust. When they pass away, your children would become the direct beneficiaries of the trust.