While most people tend to associate trusts with wealthy individuals, it is not necessarily a requirement. In fact, trusts are valuable estate planning tools for anyone – regardless of income and financial status.
These useful legal tools can be divided into two categories – revocable trusts and irrevocable trusts. While revocable trusts tend to offer more flexibility and asset control, irrevocable trusts have a superior level of asset protection.
In this article, you will discover the purpose of irrevocable trusts in Florida.
Florida Irrevocable Trust – What is It?
As its name suggests, an irrevocable trust is a legal arrangement that, once signed into existence, cannot be changed, or modified. Hence, after establishing an irrevocable trust, the trust maker (grantor) no longer owns nor controls the assets held within it.
Ultimately, the assets will be distributed to beneficiaries upon the grantor’s passing. As irrevocable trusts remove specific assets from a grantor’s estate, they are largely used to reduce tax liabilities and protect someone’s estate from creditors.
All the property held in an irrevocable trust is owned by a trustee, which is appointed by the grantor. No irrevocable trust can be a self-settled trust, in which a grantor transfer assets to a trust where he/she is the sole beneficiary.
Revocable vs. Irrevocable Trust in Florida – Explaining the Difference
Essentially, the main difference is that irrevocable trusts do not accept changes nor amendments. As the assets within a revocable trust are no longer part of the grantor’s estate, they do not incur taxes on the income generated in the trust.
Instead, the assets held in a revocable trust are still part of the grantor’s estate, meaning they still incurring taxes at the state and federal levels.
What is the Purpose of an Irrevocable Trust in Florida? – An Overview
Although revocable trusts tend to be the favorite option for flexible estate planning strategies, irrevocable trusts have several specific use cases. Wealthy individuals may utilize irrevocable trusts to reduce the taxable estate and limit tax liability.
Irrevocable trusts are useful tools to prevent beneficiaries from misusing or mismanaging assets in the trust, as they permit the grantor to set specific conditions for distribution. Also, it may provide a way to gift a residence to children with more favorable taxation.
Besides asset distribution and tax-related issues, irrevocable trusts may be crucial tools to protect benefits such as life insurance policies, Medicaid benefits, Social Security Income (SSI), etc.
It is possible to title a life insurance policy to an irrevocable trust, effectively removing the proceeds received by heirs upon the grantor’s passing from the gross estate.
Plus, it may provide an effective solution for individuals who want to secure benefits like Social Security income and Medicaid (for nursing home care) while preventing disqualification of eligibility.
For example, a disabled individual who needs long-term care may use an irrevocable asset protection trust to safeguard his assets against the high costs associated with nursing home care.
Professionals in segments that are highly vulnerable to lawsuits (e.g., doctors, attorneys, etc.) may use irrevocable trusts to secure their assets against lawsuits.
When someone transfers assets to a trust, the assets are no longer part of the grantor’s estate. Hence, no legal judgments or creditors will target trust property, as it cannot be a party to any lawsuit.
Setting Up an Irrevocable Trust in Florida – Seek Professional Guidance with an Expert Trust Attorney
Indeed, irrevocable trusts are useful legal tools in terms of estate planning. Yet, they are more complex than revocable trusts, which require a professional approach.