When forming a trust, you’ll start with something known as an intervivos trust. You will then get presented with two options, either to create a revocable or irrevocable trust. The main difference between these two types of trust is the ability to make changes to the trust once it is in place – a revocable trust can be altered while an irrevocable trust cannot be changed. So why would anyone choose an irrevocable trust? Here are the benefits from New Jersey estate planning attorneys:
- Estate tax benefits: The assets in an irrevocable trust are not subject to estate taxes, so placing assets into this trust can protect them during the probate process. Additionally, the IRS only taxes estates that are above a certain value, so you can use the trust to reduce the value of your estate. By placing assets into the trust and naming your heirs as beneficiaries, you can try to reduce your estate to an amount below the tax exemption amount. Keep in mind that this amount fluctuates each year.
- Life insurance benefits: Another role this trust can play in your estate planning is as the beneficiary of your life insurance. This will ensure that your life insurance payout is included in the value of your trust rather than your estate, which may otherwise put you above the tax exemption amount.
- Income tax benefits: Unlike a revocable trust, these trusts are viewed by the IRS in a similar way to an individual taxpayer. This means that the trust income is regarded as separate to your income, which can put you in a lower tax bracket.
- Medicare planning and qualification: These trusts can be a useful tool for Medicare planning. Rather than having to reduce your assets in order to qualify for Medicare, you can place assets into the trust. This way, they won’t be included in your personal assets when you are trying to qualify.
- Access to cash flow: An irrevocable trust doesn’t mean that your assets stop earning income or that you lose access to this income. A carefully crafted trust will ensure that your investments are kept in the ownership of the trust but that the trust is able to make payments to you on any income they generate.
Speak to an experienced estate planning attorney for advice on trust creation
At Sedita, Campisano & Campisano, LLC, experienced estate planning attorneys can assist you with creating the trust of your choice, or drawing up other legal documents including Power of Attorney, medical directives and your Last Will and Testament. For more information or to speak to an attorney, please contact us today.