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How Can an Irrevocable “Gifting” Trust Benefit You and Your Loved Ones?
Estate planning serves many functions, including helping your loved ones receive the funds you wish in the way you want to give them. It also protects your estate from gift and estate taxes. An irrevocable gift trust, or IGT, is an excellent tool that provides flexibility in passing on your wealth to future generations while simultaneously shielding your beneficiaries from paying too many taxes. You may even be able to access trust funds during your lifetime if your trust is set up properly.
Please reach out to our talented legal team for help understanding whether an IGT is suitable for you. We can look at your unique situation and help you determine whether you should create an IGT for the most benefits in leaving behind your legacy. Reach out to us right away for a free consultation at (516) 253-1366.
What is an Irrevocable Gift Trust?
An irrevocable gifting trust allows you to retain some control of your assets while gifting them to someone else during your lifetime. Your trust account will be managed by your chosen trustee, which could be a spouse, sibling, adult child, or close friend.
With an irrevocable gifting trust, your beneficiaries can enjoy the assets in the trust while you are still living. For example, they can reside in a house you give to them or use the funds in the trust. The trustee carries out the terms under which assets can be accessed according to your instructions. If your gift is made to your spouse, you can easily use the assets yourself.
Gifting money directly to your heirs without setting up a trust is the most straightforward method of transferring money, but it can lead to hefty taxes if you wish to make a large distribution. The IRS’s annual exclusion for gifts in 2023 is $17,000 per donee. This exclusion may be used to your advantage by properly structuring your IGT. You may transfer your desired amount of assets to the IGT, then grant each of the trust’s beneficiaries the temporary power to withdraw the maximum gift exclusion amount each year.
With careful planning, you may reduce or even eliminate the gift tax you must pay on transferring these funds, optimizing your estate’s value to your heirs.
What Are the Advantages of an Irrevocable Gift Trust?
Irrevocable gift trusts offer several advantages, including:
- Tax advantages – IGTs offer estate tax advantages because they are excluded from the grantor’s estate. They are also protected from being depleted due to income taxes since you can directly pay any taxes owed with your yearly tax payment at your personal tax rate, rather than paying them out of the trust itself at the compressed trust rate.
- Protection for beneficiaries – These trusts offer protection for your beneficiaries against creditors, divorce, and lack of financial management skills.
- Access to trust assets –The grantor may indirectly access the funds, especially if the account is gifted to a spouse.
How Can a Gifting Trust Protect Your Beneficiaries?
Trusts are often used as a structured and safe way to pass money to people who may have difficulties managing assets on their own. If you have concerns about the capabilities of your beneficiaries to handle a large influx of cash due to their age or life situation, controlling asset distribution through an IGT may be a good choice. Because the trust owns the assets, they are protected from the beneficiaries’ creditors, court judgments, and divorce proceedings.
Your legal team can also help you structure the terms of your IGT to meet your needs. You can provide specific instructions to the trustee who is in charge of distributing the trust’s assets. These instructions may restrict what the funds can be used for or place age limits on the distribution so you can ensure the maturity of the individual before they receive funds. An experienced estate planning lawyer can help you determine what protections may be necessary to ensure the financial stability of your beneficiaries now and in the future.
What Role Can an IGT Play in Medicaid Planning?
With the costs of long-term care for older Americans rising rapidly, it is wise to begin planning for these expenses early. Without a detailed strategy in place, the price of getting quality medical care and living in a nursing home could unnecessarily and unexpectedly deplete your estate and cause financial distress for your loved ones.
Medicaid is a means-tested government benefits program that may help individuals pay for the care they require in their golden years. However, the program has very low asset and income limits.
Medicaid prevents potential applicants from giving away their assets to qualify by enforcing a “lookback” period of several years and imposing penalties and waiting periods on individuals who improperly transferred assets. Your lawyer can help you decide whether an IGT may be a better method of gifting assets to reduce the value of your estate to qualify for Medicaid without incurring these costly penalties. However, early action is crucial if you wish to build the most robust plan possible.
Can You Retain Indirect Access to The Trust’s Assets?
Irrevocable trusts have many advantages, but it is important to remember that you can no longer directly make changes to the trust or maintain control of the assets it contains. However, you can designate a trusted individual to be the trustee of the IGT. The trustee manages the trust’s assets and their distribution.
You may be able to retain some indirect influence over the IGT through your trustee and the instructions you’ve put in place for the trust. You could also make your spouse a beneficiary of the trust, so they could receive distributions of funds that could then be used for any purposes you decide as a couple.
Should You Hire Our Trusts Attorneys?
Creating a trust is an excellent way to protect your wealth, and irrevocable gift trusts are no exception. However, these documents can be complicated and should be entered into only with excellent legal counsel and representation.
Contact our law firm right away if making an IGT is a good move for your estate plan. We can help you determine the right trust for your family and will create legally sound documents that protect you and your loved ones for years to come. Contact us today to speak with our talented legal team at (516) 253-1366.
