Irrevocable Trusts in Arizona - do you need one?
Are you wondering whether or not you should set up an irrevocable trust in Arizona? Here's everything you should know about these trusts.
Did you know that 67% of people in the United States don't have any kind of estate plan? If you pass away without an estate plan, your belongings and money might go to people whom you don't want to inherit those items. Going without an estate plan also makes it more difficult for your family to sort out your finances after you're gone.
Arizona law also require probate to transfer assets to your heirs and survivors. The probate process is not only time consuming but it is all expensive. Revocable and irrevocable trusts can help you avoid probate.
This is why it's important to make a plan such as an irrevocable trust. But what is the difference between an irrevocable trust and a revocable trust? Keep reading and learn more about your options below.
Should You Set up an Irrevocable Trust?
There are many types of trusts and an irrevocable one is one of the most secure. Many people like the idea of setting up an irrevocable trust as it will help them avoid certain financial issues and create asset protection. It will also make the financial process easier on your family after you die.
The main downside (or upside for some) is that this type of trust cannot be changed once it's created. This is why you as the trust's creator need to be very careful when creating such a trust. You might put certain specifications in the trust that you might regret after several years.
But there won't be anything you can do to change it. This is why you need to think ahead and make sure you make the right decision before creating this trust. There are certain exceptions, but they often require you to get a court decree. An experienced estate planning attorney should be able to guide you correctly.
This is a lot of work to change some wording in an irrevocable trust. It is better to be careful when you first get your irrevocable trust created. Once you create the trust, you can decide which of your assets will be transferred into it.
This trust is different from a revocable living trust also know as revocable trust. A living trust is one that you can change as you see fit. But what is the benefit of an irrevocable trust?
Isn't it more of a hassle to deal with a trust that you can't change? It's true that an irrevocable trust isn't for everyone. But it offers certain benefits that may be important to you.
One of them is that this trust acts as a shield against estate taxes.
The Benefits of an Irrevocable Trust
Why use an Irrevocable Trust? Suppose you have a very large estate. When you die, a certain percentage of your estate will be taxed. This prevents your family members from inheriting the whole thing.
The federal estate tax can sometimes be as high as 40%. But not everyone will have to worry about these taxes since they apply to assets worth more than $12.92 million. But if your estate is this size or larger, you will have to worry about a large chunk of it going to government taxes.
This is where an irrevocable trust can help you. Certain types of irrevocable trusts allow you and your family to avoid most or all of these taxes. There are credit shelter trusts, generation-skipping trusts, and so on. You can also set up a irrevocable life insurance trust to help pay for some of the taxes.
There are also trusts for those with disabilities. There are spendthrift trusts for those who are irresponsible with their money too. If you don't have anyone in your life that you want to inherit your assets, you can also create a charity trust.
An irrevocable trust will also protect your assets from creditors. Creditors will always see what they can get from your assets after you die. It may be possible to get some of your assets if your trust isn't bulletproof.
Irrevocable trusts are great for preventing creditors from taking assets that you don't want them to have but there is a 5 year look back period in Arizona. To protect assets for your family you need to work with an experienced estate planning attorney to design the correct estate planning strategy for you and to make sure assets transferred are done correctly to not generate estate taxes.
Here are some factors to consider when deciding whether an irrevocable trust is right for you in Arizona:
- Asset protection: If you have valuable assets that you want to protect from creditors or legal claims, an irrevocable trust can be a useful tool. In Arizona, irrevocable trusts can provide protection against creditor claims as long as they are set up properly and in advance.
- Tax planning: Irrevocable trusts can also be used for tax planning purposes. For example, they can be used to reduce your estate tax liability, as assets transferred to the trust are no longer considered part of your estate.
- Medicaid planning: If you anticipate needing long-term care and want to qualify for Medicaid benefits, an irrevocable trust can help protect your assets and make you eligible for Medicaid. Talk to an elder law attorney if you think that is the case.
- Loss of control: One of the main downsides of an irrevocable trust is that you give up control over the assets that are transferred to the trust. Once the assets are in the trust, you cannot change the terms or beneficiaries of the trust.
- Costs: Establishing an irrevocable trust can be more expensive than setting up a revocable trust, as it requires more complex legal work.
In summary, setting up an irrevocable trust in Arizona can provide valuable asset protection and tax planning benefits, but it requires careful consideration of the potential drawbacks, including loss of control and higher costs. It's important to consult with an experienced estate planning attorney to determine whether an irrevocable trust is the right choice for you.
What Else Can an Irrevocable Trust Do?
An irrevocable trust is also a good way to qualify for certain government programs. Suppose you want to apply for Medicaid. You can't apply for this government program and government benefits if you have too many assets.
But this doesn't mean that you have to throw out everything you own. You can instead put your assets into an irrevocable trust. This will remove the assets from your estate, but they will still be protected. This then shows that you have limited assets and you shouldn't have a problem qualifying for Medicaid. There is also a 5 year look back period here as well. The correct legal entity needs to be set up ahead of time.
The main downside of this is that you have to be comfortable giving up your assets. They will no longer be under your control once you put them into a trust. While the assets will be protected, you will no longer be their owner.
There is also the challenge of setting up the trust. If you've never set one up before, you might not know where to start. But this is why it is important to have estate planning attorneys on your side.
There are many things you need to consider when you set up a trust. You could easily make a big mistake if you don't know what you're doing. But hiring an estate planning lawyer will make the process much easier.
Your lawyer can walk you through the process and make sure that you make the right decisions for your assets. You lawyer may also suggest that you create a revocable trust that turns into an irrevocable trust after you pass away. Revocable trusts like that are used specially to protect assets for your spouse or children when we are dealing with blended families. The revocable trust automatically turn into an irrevocable trust after the first death. That is always a good idea if you have a blended family and you want your children to have their on Living trust.
Asset Protection Trust vs Living Trust?
Creating an irrevocable trust may offer some asset protection. Protecting assets in a Trust is much more complex than creating a living trust that will get distributed when you pass away. An experienced trust attorney should be able to guide you to help you understand if you should create a trust. "Should I create a trust?" is a question that we get asked all the time. Only an experienced estate planning lawyer should be able to answer that question.
Does an Irrevocable Trust avoid Probate?
Irrevocable Trusts are different instruments design to pass wealth from one generation to another, or to protect you assets. How do irrevocable trusts work? That is a complex question that only an experienced estate planning attorney can answer. Some of the common questions asked about irrevocable trusts are:
- Does a trust protect assets?
- How much is an irrevocable trust?
- How to create an irrevocable trust?
- Can I set up irrevocable trust online?
We strongly advised you to work with an trust and wills attorney that understands irrevocable trusts well. Not all estate planning attorneys have the background and experience to set up the proper trust that will achieve the goals it was designed for.
What You Need to Know About Irrevocable Trust Options
An irrevocable trust may be just what you need to protect your assets and an important part of your estate planning. This type of trust is good for avoiding certain types of taxes and creditors. It can also protect your assets if you need to transfer them out of your estate.
An estate planning lawyer can help you with this. To learn more about it, check out our estate planning services.
Call (480) 565-8020 or click here to schedule your free estate planning consultation to understand more about revocable and irrevocable trusts. Our estate planning attorney will be pleased to help.
Want to learn more about irrevocable trusts? Check our other blog articles
Advantages of an Irrevocable Trust in Arizona - click here
Revocable vs. Irrevocable Trusts in Arizona - click here