- Running an Irrevocable Trust
- How to Administer an Irrevocable Trust
- How to Report Irrevocable Trust Income Taxes to the IRS
- What Disbursements From the Irrevocable Trust Fund Are Considered Tax-Exempt?
- Tax Consequences for Revocable and Irrevocable Trusts
- Are Education Trust Fund Disbursements Taxable?
Irrevocable trusts provide distributions to beneficiaries on a set schedule or at the discretion of the trustee. The manner in which the trust is worded dictates the distribution of trust income. Additionally, grantors can remove assets from their own estates to qualify for medical assistance and minimize the amount of money out of their own pocket that they have to pay.
The express terms of a trust set out how a trust can be used. Providing for the payment of medical expenses is one of the primary uses of an irrevocable trust. Grantors, the individuals who establish the trust, might anticipate that they can incur expensive medical costs, but they may have a diminished ability to afford the high costs of a nursing home or medical treatment. A standard provision in a trust includes language that the trust can be used to pay for the "health, support, maintenance or education" of the beneficiary. The trust may have one beneficiary or multiple beneficiaries. Also, the person who establishes the trust may make provisions providing for his own care.
Amending a Trust
Even though the trust is irrevocable, you might be able to amend it. Trusts are governed by the Probate Code of the state in which it was established. A petition to the Probate Court by the settlor, or beneficiary, might lead to the trust being amended, modified or terminated. The court may require the consent of all or some beneficiaries and the grantor. The irrevocable trust might be able to be amended by showing that a directive in the trust cannot be carried out without amendment.
Means-Based Governmental Benefits
Transferring assets into an irrevocable trust can help prevent the beneficiary from losing out on federal and state benefits tied to income levels. This strategy can prevent a beneficiary from becoming ineligible for benefits such as Supplemental Security Income or Medicaid. Otherwise, a person’s assets are consumed to pay for medical or other care before government aid kicks in. If an irrevocable special-needs trust is established, assets can be utilized to enhance the beneficiary’s living conditions. In exchange, the trust must contain a provision that states that any remaining assets in the trust will be used to pay back the Medicaid system before any disbursements are made to other beneficiaries.
A trust can provide gifts up to a certain value each calendar year without triggering the gift tax, based on guidelines from the Internal Revenue Service. However, the trust can pay for an unlimited amount of medical expenses for a person, as long as the expenses are paid directly to the health care provider or institution.
- The Rushforth Firm, Ltd.: Irrevocable Trusts
- Gianelli & Polley: The Value of Using Irrevocable Trusts in Medicaid Planning
- California Bar Journal: Amending Irrevocable Trusts
- Walter & Haverfield LLP: Building Flexibility into the Typical Irrevocable Life Insurance Trust
- Legalstreet: Irrevocable Trust Overview
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