When an irrevocable trust is useful

| Aug 5, 2020 | Estate Planning

There are advantages and disadvantages to using an irrevocable trust, and for most people, a revocable trust is sufficient. However, there are situations in which an irrevocable trust, which usually cannot be changed, is a good idea. For example, while the federal estate tax exemption is high enough that few people need the protection an irrevocable trust can offer from federal estate taxes, Pennsylvania does have an estate tax that an irrevocable trust could also protect against.

The main disadvantage of an irrevocable trust is the very thing that makes it powerful, which is that property placed in the trust is removed from the control of the person who created the trust. While this can mean that settlors do not have to pay down all the assets in order to access Medicaid, it can also mean that if they have a falling out with a beneficiary, they might be unable to change the trust to reflect that.

An asset protection trust is a type of irrevocable trust that can be useful in protecting assets from creditors. However, they are not permitted in Pennsylvania although it may be possible to set one up in another state. It is important that the right kind of irrevocable trust is created to serve a person’s needs.

It may be best to work with an attorney on estate planning to determine whether a trust should be used. Some people may want to use one or more trusts in conjunction with a will. People who only have a will might also want to create a power of attorney to appoint someone to take over their finances if they are incapacitated.

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