Understanding Irrevocable Trusts: A Comprehensive Guide to Estate Planning

Every adult in South Florida needs a well-constructed estate plan. A great plan is a comprehensive plan. Many people can benefit from setting up a trust as part of their estate plan. One type of trust, an irrevocable trust, can be a valuable estate planning tool. However, an irrevocable trust is not right for every situation. At The Law Offices of Odelia Goldberg, we have extensive experience with trust planning. Below, our Fort Lauderdale estate planning lawyer provides a comprehensive guide to irrevocable trusts in Florida. 

What is an Irrevocable Trust?

An irrevocable trust is an estate planning tool. The Legal Information Institute defines an irrevocable trust as “any trust where the grantor cannot change or end the trust after its creation.” In other words, an irrevocable trust is a type of trust that cannot be modified, amended, or terminated without either Court approval or the unanimous consent of the beneficiary or beneficiaries. Once the trust is established and assets are transferred into the trust, the grantor relinquishes control over these assets. The assets in the irrevocable trust are removed from the grantor’s estate. 

The Four Main Advantages of an Irrevocable Trust

Are you considering setting up an irrevocable trust as part of your estate plan? It may be the most effective option to protect your financial interests and achieve your goals. Here are four of the main benefits of revocable trusts in Florida:  

• Avoid Exposure to Probate: As a starting point, irrevocable trusts avoid probate. Probate in Florida has the potential to be a time-consuming, complicated, and even frustrating process. When assets are placed in an irrevocable trust, they are no longer considered part of the grantor’s estate at death. As such, they do not go through the probate process. By avoiding probate, the distribution of assets can happen quickly after a person passes away. Beyond that, avoiding probate also ensures privacy regarding the assets and their distribution.
• Obtain Protection from Creditors: Assets held in an irrevocable trust are generally protected from creditors—at least assuming the trust is set up properly. The reason is that the grantor (the person who set up the trust) has legally relinquished ownership of these assets. Indeed, once property is transferred into an irrevocable trust the legal ownership of the assets has changed from the person to the trust itself. Creditors cannot lay claim to these assets in the event of the grantor’s personal financial troubles. It is important to note that creating a trust to avoid a known creditor is not permissible and will not avoid liability.
• Set Up Medicaid Eligibility:  Setting up an irrevocable trust can be a strategic tool in Medicaid planning. By transferring assets into an irrevocable trust, these assets are excluded from the calculation of an individual’s personal net worth for Medicaid eligibility purposes. This is critical because Medicaid requires applicants to fall below a certain asset threshold to qualify for benefits. An irrevocable trust allows individuals to legally protect their wealth and still meet the financial eligibility requirements for Medicaid—which can cover long-term care costs that could otherwise deplete family resources.
• Access Estate Tax Benefits: An irrevocable trust can significantly reduce or even eliminate estate taxes. Since the assets transferred into the trust are no longer owned by the grantor, they are not included in the grantor’s taxable estate at the time of death for estate tax purposes. For a person with substantial assets, the estate tax advantages may be a major benefit.  

Three Important Drawbacks to Irrevocable Trust

An irrevocable trust is certainly not the right option for every person in South Florida. Indeed, there are some key (potential) downsides to setting up an irrevocable trust that must be considered and evaluated. Here are some of the most notable drawbacks to irrevocable trusts: 

• Complexity: Setting up an irrevocable trust involves considerable complexity and must be drafted carefully as it is, in fact, irrevocable and cannot be amended or changed. Indeed, compared to using a will to transfer property/assets, an irrevocable trust is more complicated. The complexities associated with drafting an irrevocable trust can be a drawback.
• Cannot Be Changed or Taken Back: The most significant limitation of an irrevocable trust is its inflexibility. Once it is established and assets are transferred, the trust terms cannot be altered, amended, or revoked without a Court order or the unanimous consent of the beneficiaries—and that consent can sometimes be impossible to obtain. The inflexibility can pose problems if the financial situation or intentions of the grantor (trust creator) change over time. 
• Not Always Enough Time for Medicaid Qualification: Irrevocable trusts are often used as a tool for Medicaid planning. As noted previously, this is a major benefit of irrevocable trusts. They must be established and funded well in advance of when benefits are needed. Medicaid has a look-back period, typically five years, in which all asset transfers can be scrutinized. If assets are transferred into a trust during this period, it may delay or disqualify the grantor from receiving Medicaid benefits. 

A Revocable Trust is an Alternative Option

A revocable trust allows the grantor to retain control over the assets and the ability to alter or terminate the trust at any time. This is in contrast to an irrevocable trust that does not permit changes once it has been established. While assets in a revocable trust are still considered part of the grantor’s taxable estate, assets placed in an irrevocable trust are removed from the estate. Revocable trusts offer flexibility and can be adapted to changing circumstances or intentions of the grantor, but irrevocable trusts provide far stronger protection from creditors. 

An Estate Plan Should Be Customized to Meet Your Needs

There is no one-size-fits-all estate planning solution. An irrevocable trust may or may not be the right option for your specific situation. It is imperative that you consult with a top-tier Fort Lauderdale estate planning lawyer who can protect your rights and help you achieve your goals. 

Get Help From Our Fort Lauderdale Estate Planning Attorney Today

At The Law Offices of Odelia Goldberg, our Florida estate planning lawyer is a solutions-focused advocate for clients. If you have any specific questions or concerns about irrevocable trusts, please do not hesitate to contact us today for a completely confidential initial appointment. From our office in Fort Lauderdale, our firm provides estate planning representation throughout South Florida.