There are two basic types of trusts, a revocable trust and an irrevocable trust. Many people choose to set up a revocable trust since they retain a lot of control. They can change who serves as trustee, alter the terms of the trust and even abolish the trust altogether. Still, some families decide that an irrevocable trust may serve them better.
Setting up an irrevocable trust carries some risk since you will give up control over the assets you place in the trust, plus you cannot abolish the trust once you create it. As Kiplinger explains, whether you can truly benefit from having an irrevocable trust will depend on your circumstances.
Protection against lawsuits
Some people work in occupations where they face a greater chance of litigation. Surgeons and real estate developers are two examples. If you run the risk of a lawsuit because of your line of work, you may place some of your assets in an irrevocable trust to shield them from court judgments. Still, whether you can create a trust to protect your assets will ultimately depend on the particulars of state law.
Keeping estate taxes low
You might want to minimize how much the government can take from your estate in taxes after you die. Putting your money in an irrevocable trust may accomplish this. Some families use a grantor retained annuity trust to receive an income for several years. Afterwards, the trust pays the rest of the money to beneficiaries without paying estate taxes. A charitable remainder trust could pay money to your family now and dispense the money tax free to a charity after your death.
Qualifying for government assistance
If you need assistance from government programs like Medicaid and Supplemental Security Income, you should be aware that these programs have income requirements in order to qualify for benefits. However, if you put aside money in an irrevocable trust, you may drop your income below the threshold limit. Be aware that the government may place requirements on your trust for you to qualify. For instance, Medicaid rules may dictate that you must create your trust a set number of years before you can become eligible for Medicaid.