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Unlike a revocable trust, an irrevocable living trust is one in which the grantor—the person creating the trust—completely gives up all rights to the property transferred into the trust.  The grantor retains no rights to revoke, terminate or modify the trust in any way.  There are some major benefits provided by this type of trust.  The attorneys at the law firm of Haas Tharrington, P.A. in Raleigh, North Carolina help clients determine the best way to plan for preserving assets for their heirs.

Avoiding estate taxes

An irrevocable trust is a separate taxable entity and pays tax on its accumulated income.  The property in the trust is not part of the grantor’s estate and is not subject to estate taxes.

Long-term care

Irrevocable trusts can be set up as a way to protect assets from long-term care expenses.  The irrevocable trust is the owner of the assets and the grantor no longer has a claim to them.  Because the grantor no longer owns any assets, he/she could qualify for Medicaid assistance.

An irrevocable trust is exactly what it says it is—irrevocable.  The information provided here is only a small part of the information you need to know regarding irrevocable trusts.  Consult an attorney at Haas Tharrington, P.A. to explore all the options in estate planning and ensure that your family is provided for in the way you intend.

Marital Trusts

One of the most powerful estate planning tools available to married couples is the unlimited marital deduction.  This is a federal tax law that provides spouses with the ability to distribute unlimited assets to a surviving spouse without the penalty of estate or gift tax.

A marital trust pays all of its income to the surviving spouse.  This is a requirement.  The spouse may also be entitled to certain amounts of principal upon request.  The grantor may name a trustee (who is not the spouse) and give the trustee discretion to make distributions to the surviving spouse as the trustee feels appropriate.

There is one other requirement that the marital trust must meet.  It must be included in the surviving spouse’s gross estate when that spouse dies.  If the estate of the surviving spouse, including those assets, is large enough, it may be subject to estate taxes.  Estate tax is deferred at the time of the first spouse’s death, but not avoided altogether.

Qualified terminable interest property (QTIP) is a special type of marital trust.  The QTIP trust provides a surviving spouse with income from the trust for the spouse’s lifetime.  However, unlike other marital trusts, once the surviving spouse dies, the remaining trust assets are passed to those beneficiaries named in the first spouse’s will.  Thus, an individual may provide financial support for a surviving spouse, but retain control of, or direct, the trust assets after the surviving spouse’s death.  Upon the death of the surviving spouse, the entire value of the QTIP trust is included in the surviving spouse’s gross estate and may be subject to estate taxes.

Contact us at 919-783-9669 today to discover how we can help with your irrevocable trust needs.

A credit shelter trust (also referred to as a family trust, bypass trust or trust B in an A-B plan) is a valuable tool which helps married couples avoid paying unnecessary estate taxes.  It does this by ensuring that the applicable exclusion amounts of both spouses are fully utilized.  At the first spouse’s death, the estate transfers a sum equal to the applicable exclusion amount into the bypass trust.  Although the trust property will bypass the surviving spouse’s estate, the spouse will still be able to receive benefits from the trust during life.  Upon the first spouse’s death, no estate taxes will be assessed on the transfer because the amount in the trust equals the applicable exclusion amount, which is the amount that will be protected from estate tax liability by the estate tax credit.  The second portion of the estate will be either given outright to the spouse or placed in a marital trust.  The trust will hold the amount of the estate above the applicable exemption amount.  The trust property will pass as the surviving spouse directs under a general power of appointment.  With the marital trust, on the first spouse’s death, no estate taxes will be assessed on the transfer.  The marital trust will qualify for the unlimited marital deduction, allowing assets to pass tax-free to the surviving spouse.  Upon the second spouse’s death, the estate can make full use of the second spouse’s available applicable exemption amount, to shelter part of the marital share from estate tax.

Marital trusts have a number of technical requirements.  For marital deduction planning or other estate planning tools consult an attorney at Haas Tharrington, P.A.

Special needs and supplemental needs trusts

Special needs trusts—also referred to as supplemental needs trusts—are often used when a dependent or beneficiary has a physical or mental disability, and the grantor of the trust is concerned about providing for the future needs of the disabled person.

Often, well-intentioned parents, siblings, spouses or other relatives do not realize that an inheritance may cause problems for the heir.  Under current federal law, an inheritance of more than a certain amount disqualifies disabled individuals from most federal needs-based assistance.  Benefits from state public assistance programs may also be affected.

Assets left outright to someone receiving governmental benefits would likely render that person ineligible for the government benefits, and special equipment and rehabilitation programs can be expensive and could quickly use up whatever inheritance is left.  The beneficiary could end up on government benefits anyway, without the resources the grantor wanted to provide.

With a properly drafted special needs trust, the disabled person may receive government benefits and still enjoy the inheritance that the grantor wants to provide.  It is essential that the trust clearly states that it may be used only to provide benefits that are above and beyond the benefits the person receives from any government agency.  No part of the trust can be used to duplicate public assistance benefits of any county, state, federal or other governmental agency, but it may be used to supplement these benefits.  For example, the trust might provide the means for the person to acquire some specific medical equipment (that the government benefits do not cover), to have dental work done, to buy clothes or to put a down payment on a house.  It can also be used to supplement the government funds provided to pay for home health aide care.

The grantor appoints a trustee whose job is to manage the trust assets and income and make purchases for the benefit of the disabled beneficiary.  The trustee is also responsible for helping the beneficiary apply for and receive benefits from available public resources, such as Supplemental Security Income (SSI), Federal Social Security Disability Insurance (SSDI) and the appropriate state or local services for the disabled.  The trust can be drafted so that it lasts for the beneficiary’s lifetime, or until it is determined that the beneficiary is able to manage on his/her own.

An important point to remember is that the disabled beneficiary cannot serve as the trustee.  The whole premise of a special needs trust is that the beneficiary is not considered to have access to the principal or the income of the trust.  The assets of the trust are for the benefit of the person with the disability, but the disabled person has no power or authority over the trust assets.

Do not try to draw up a special needs trust on your own, or use a form off the internet.  Even a small mistake may render the beneficiary ineligible for government benefits.  The law changes frequently and the trust language must comply with the current regulations.  To provide for your loved one, contact an attorney at Haas Tharrington, P.A. to draft the trust.

If you have any questions about irrevocable trusts or would like to draft on, contact the family law attorneys at Haas Tharrington, P.A.