Planning your estate is about more than passing down assets after you are gone. With the right strategies, you can provide meaningful support for your loved ones during your lifetime. One way to do this is through an Irrevocable Gift Trust (IGT), a tool that offers tax advantages, protection from creditors, and long-term security for your beneficiaries.
At Surprenant, Beneski & Nunes, P.C., we help families throughout Southeastern Massachusetts and Cape Cod understand whether an irrevocable gift trust makes sense for their goals. Below, we explain how these trusts work and the key benefits they provide.
How an Irrevocable Gift Trust Works
When you create an irrevocable gift trust, you transfer assets, such as cash, securities, or real estate, into the trust. Once transferred, those assets are owned by the trust, not you personally. Unlike a revocable trust, you cannot dissolve or change an irrevocable gift trust after it has been established. However, you can decide at the outset who will benefit, how distributions will be made, and who will serve as trustee.
This structure provides unique advantages for tax planning, asset protection, and long-term care planning.
Tax Benefits of Irrevocable Gift Trusts
One of the primary reasons people choose an IGT is for the tax savings. These include:
- Estate tax reduction: Once assets are placed in the trust, they are no longer counted as part of your taxable estate. However, if you transfer ownership of a life insurance policy, federal tax law requires that the policy be in the trust for at least three years before your death to avoid being included in your estate.
- Gift tax advantages: You can contribute annually up to the federal gift tax exclusion limit ($19,000 per person in 2025), and each beneficiary has a temporary right to withdraw the annual gift. This feature, known as a Crummey power, makes the gift qualify for the exclusion.
- Income tax flexibility: If structured properly, income generated by the trust may be deferred until beneficiaries receive it, which can result in additional tax benefits.
Protection From Lawsuits, Creditors, and Judgments
An irrevocable gift trust can also safeguard your wealth. Once assets are in the trust, they are generally protected from claims by:
- Lawsuits
- Creditors
- Former spouses
This protection can be especially valuable for professionals and business owners who face higher liability risks, but it can benefit anyone who wants to shield family assets from unexpected legal threats.
Preserving Assets for Loved Ones
IGTs also give you peace of mind knowing that gifts you make will be used responsibly. They allow you to put safeguards in place for beneficiaries who may not yet be ready, or may never be ready, to manage large sums.
For example, an IGT can be useful if your beneficiary is:
- A minor
- An adult without strong financial management skills
- Struggling with substance abuse or gambling issues
You can set terms in the trust that delay access to funds until certain milestones are met or distribute assets gradually over time. The trustee may also be given discretion to make distributions that support your loved one without giving them direct control over the assets.
Maintaining Eligibility for MassHealth/Medicaid
Long-term care costs in Massachusetts are significant, and many families worry about protecting their assets while still qualifying for MassHealth/Medicaid. Because the trust owns the assets, not you, funds in an IGT generally are not counted when determining eligibility.
Keep in mind, however, that Medicaid has a five-year “look-back” period. The trust must be established at least five years before you apply for benefits in order for the assets to be protected.
Why Work With an Estate Planning Attorney
Creating an irrevocable gift trust involves important decisions about tax treatment, trustee selection, and distribution terms. Every family’s situation is different, which is why it’s important to work with an experienced estate planning attorney who understands Massachusetts law. At Surprenant, Beneski & Nunes, P.C., we will walk you through your options and design a trust that supports your family today and in the future.
Talk to Surprenant, Beneski & Nunes About Irrevocable Gift Trusts
Irrevocable gift trusts can be a powerful way to reduce taxes, protect assets, and support your loved ones responsibly. If you are considering this option, the sooner you begin the process, the more benefits you and your family may enjoy.
Contact Surprenant, Beneski & Nunes, P.C. today to schedule a consultation and learn how an irrevocable gift trust can work as part of your estate plan.
