Irrevocable Trust in Phoenix, Arizona
Advantages of an Irrevocable Trust in Phoenix, Arizona
A trust is a legal entity that provides for the ownership, management, and distribution of property. There are two main types of trusts in Phoenix: irrevocable and revocable. An irrevocable trust cannot be changed or canceled, except under very special circumstances. In contrast, a revocable trust can be modified or terminated at any time by the creator.
Giving up control of your assets through an irrevocable trust does come with certain benefits. Below are the four primary advantages of including an irrevocable trust in your Phoenix estate plan.
Advantages of Including Irrevocable Trust
- Lower Tax Liability
Assets in an irrevocable trust are not subject to federal estate tax. This is only relevant for very large estates because only estates that exceed the estate tax limitation ($22.58 million in 2020) are subject to federal estate tax. One way that estates can exceed this limit is through life insurance proceeds because payouts are included in the value of your estate. The federal estate tax is significant and can reach up to 40 percent.
- Asset Protection from Lawsuits and Creditors
When you create an irrevocable trust, you are no longer considered the owner of the property in the trust. Because you are no longer the owner, property in an irrevocable trust is protected from creditors and lawsuits. Since you can’t access the trust property, creditors can’t access it either. Certain industries, such as the legal and medical, are particularly prone to lawsuits. If you are in these professions or otherwise are prone to lawsuits, you should seriously consider setting up an irrevocable trust.
You cannot set up an irrevocable trust for the purpose of defrauding creditors. If a court finds that a debtor created an irrevocable trust with the intent of hiding assets from creditors, it could be overturned. You should not make an irrevocable trust while a lawsuit is pending against you or an event occurred for which somebody might sue you.
- Qualification for Government Benefits
Many government benefits, such as Medicaid and VA Aid and Attendance benefits, require that beneficiaries meet specific income and asset limits. Property in an irrevocable trust is not counted towards these limits because the government does consider you to have ownership over the property. This advantage is especially beneficial for individuals anticipating long-term healthcare needs or individuals who have beneficiaries with special needs.
When you apply for Medicaid and VA Aid and Attendance, the government will look back to see if you recently sold or gave away assets for less than fair market value. In Arizona, the Medicaid look-back period is five years. The VA Aid and Attendance look-back period is three years. The government will count all assets transferred to an irrevocable trust within the look-back period towards the income and asset limits.
- Avoid Probate
A significant benefit of both revocable and irrevocable trusts is the avoidance of probate. Probate is the court process of administering an estate after someone dies. It can be a lengthy and costly process, especially for larger and more complex estates. Trusts do not need to go through probate; the trustee can distribute the property to the beneficiaries immediately after your death. Additionally, probate files become public record. Any property distributed through an irrevocable trust will stay private.
In Phoenix, if you have a smaller estate, you might be able to avoid probate without creating a trust or other probate-avoiding instrument. Arizona offers a simplified process requiring no probate for estates with equity that does not exceed $100,000 or personal property that does not exceed $75,000.
Do You Need an Estate Planning Attorney?
Irrevocable trusts are complex and unique documents. You should not attempt to create one on your own without the help of an experienced estate planning attorney. There are specific rules that your irrevocable trust must follow for you to receive the advantages outlined above. If you overlook even one requirement, you could be left with a trust that fails to meet your needs. Because of the permanent nature of irrevocable trusts, any mistake or necessary change will be difficult and costly to correct. If you are considering including an irrevocable trust in your estate plan, your first step should be to reach out to an experienced Phoenix estate planning attorney.
Your Phoenix Estate Planning Attorney
If you have questions about irrevocable trusts and would like to speak to a probate and estate planning lawyer, call Nicole Pavlik Law Firm. Nicole Pavlik is an experienced Phoenix estate planning attorney who can guide you through the probate process. Call Nicole Pavlik Law Firm today at 602-635-6176 to schedule a free consultation and discuss your probate needs.