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Whether you lose control of the assets depends on the type and purpose of the irrevocable trust. For examples, some irrevocable trusts that are done for advanced tax planning purposes do require you to give up control of the assets. Other types of irrevocable trusts, such as those done to protect assets from nursing home expense, do not require you to give up control, as long as the trust is drafted properly.
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Again, that depends on the type and purpose of the trust. If the trust has been established to provide nursing home asset protection, you can retain the power to make changes to the trust.
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An estate plan could allow for the utilization of a trust protector, which is an objective third party that would be brought in by a court, the trustee, or the beneficiaries. This trust protector would become apprised of the facts and make a decision with regard to a proposed change. The trustee or the beneficiary of an irrevocable trust can be given a power of appointment that would give them the ability to change the terms. Under some circumstances, a court can order a judicial modification, and charitable trusts often include provisions that allow for modifications to react to statutory changes.
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It is possible to create a trust that cannot be revoked while you are living, but the living trusts that most people use are revocable. When you establish a revocable living trust, you would act as the trustee while you are living, and you could change the terms as you see fit.
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Some irrevocable trusts are used to remove the value of assets from your taxable estate. Currently in New York, you would owe estate tax only if your taxable estate exceeds $5.93 million dollars, so those trusts are typically created by wealthy individuals. However, there are other reasons why a person would use an irrevocable trust.
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Most senior citizens will need living assistance eventually, and a significant percentage of them will reside in nursing homes. These facilities are extremely expensive, and Medicare does not pay for the custodial care that nursing homes provide. Medicaid will pay for long-term care, but it is a need-based program, so there are income and asset limits. In an effort to develop a financial profile that will lead to Medicaid eligibility, you can convey assets into an irrevocable Medicaid trust. If you apply for Medicaid to pay for a stay in a nursing home, the principal would not count, but there is a caveat. There is a five-year look-back period, so the trust must be drafted and funded carefully to avoid the otherwise harsh penalties that can be imposed for transferring the assets to the trust.. Another reason to establish an irrevocable trust is to provide resources for a loved one with special needs. Many people with disabilities rely on Medicaid and Supplemental Security Income, and a windfall can potentially cause a loss of eligibility. Assets that have been conveyed into an irrevocable supplemental needs trust could be used to make the beneficiary more comfortable without impacting government benefit eligibility. In some cases, a person that is relying on these benefits will come into money for some reason. Under these circumstances, they could fund a self-settled or first party irrevocable supplemental needs trust. These are a couple of examples, but there are other reasons why an irrevocable trust may be utilized.
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Many people believe that if you create an irrevocable Trust, you are required to obtain a separate tax identification number. Please watch the video of our attorney Mike Robinson as he explains whether or not this is necessary - below:
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