Planning your estate not only enables you to provide for your loved ones after you die but to share your assets with them while you are alive. One of the most advantageous ways to accomplish the latter is to create an Irrevocable Gift Trust (IGT). If you live in Southeastern Massachusetts or on Cape Cod, the knowledgeable trust attorneys of Surprenant & Beneski, P.C. will help you craft an irrevocable gift trust that will benefit both you and your heirs.
Advantages of Irrevocable Gift Trusts
IGTs are commonly used to provide the grantor’s children and grandchildren with legacy gifts and can offer considerable tax advantages, healthcare benefits, and protection from a number of potential external and internal threats. Also, although grantors cannot dissolve or change an irrevocable trust once it has been created, they retain some control over their assets.
Irrevocable Gift Trusts Minimize Taxes
There are a number of tax advantages to irrevocable gift trusts. For one thing, IGTs, once established, are considered completed gifts and are therefore excluded from the grantor’s estate when estate taxes are calculated. However, it is important to be proactive about establishing such a trust, since it must exist for at least 3 years before the grantor’s death to be excluded from being taxed as part of their estate.
An irrevocable gift trust can also provide gift tax advantages since the grantor can gift the trust annually to maximize the federal annual exclusion amount for gifts ($17,000 in 2023). Each designated beneficiary then has a temporary right to withdraw the annual gift exclusion amount. This withdrawal right is known as a “Crummey power.” If the grantor includes a provision in the trust stating that income tax on the trust will be deferred until the beneficiaries receive the income, the grantor will receive considerable tax benefits.
Irrevocable Gift Trusts Protect Your Assets from Judgments, Lawsuits, and Creditors
Although some professionals, e.g. doctors and business owners, are at heightened risk, anyone can be the target of a lawsuit or judgment. Anyone may be targeted by a vindictive ex-spouse or determined creditor. By putting your assets in an irrevocable gift trust, you nearly always ensure their protection from such threats.
Irrevocable Gift Trusts Preserve Assets for the Future
Another reason that IGTs are considered such a helpful estate planning tool is that they allow the grantor to make gifts to individuals who are unable to manage finances responsibly due to:
- Being a minor*
- Being of age but lacking mature judgment
- Lacking financial management skills
- Being a substance abuser or gambling addict
*An IGT can include provisions to prevent the beneficiary from having direct access to the funds until they are deemed sufficiently responsible under the terms of the trust, even after they have reached the age of 21.
If any of the above situations exist in your case, an irrevocable gift trust may be a fine solution to provide a gift to someone you love while including a safety net to preserve their future assets. It is worth noting, however, that the appointed trustee of the irrevocable gift trust is permitted to distribute trust assets to the trust’s beneficiaries during the grantor’s lifetime.
IGTs Can Maintain Your Eligibility for MassHealth/Medicaid
Because once you have created the irrevocable gift trust, your assets are owned by the trust and not by you, the assets in the trust will not make you ineligible for MassHealth/Medicaid benefits if you should become incapacitated and require long-term care. As with estate taxes, there is a look-back period, so the IGT must be established at least 5 years before you apply for Medicaid.
Contact Our Experienced Irrevocable Gift Trust Attorneys Today
The many benefits of an irrevocable gift trust may make it the right choice for you and your beneficiaries. As with other aspects of estate planning, it is wise to get started creating your trust as soon as possible. Contact us now to discuss how best to proceed.