Irrevocable trusts are increasingly becoming popular estate planning tools for various reasons. Beyond their versatility, irrevocable trusts offer other benefits, such as shielding assets from creditors, reducing estate taxes and helping with Medicaid planning.
Despite these advantages, you do not want to rush into creating one without fully understanding the long-term implications that could leave you or your loved ones in a difficult situation. Irrevocable trusts come with significant trade-offs that you should carefully consider beforehand, as explained below.
Loss of control and ownership of assets
Once you transfer assets to an irrevocable trust, you relinquish control over them. You no longer legally own or control the assets as they now belong to the trust. It means you cannot sell them or transfer ownership to third parties whenever you wish like before.
Irrevocable trusts cannot be easily reversed
It’s difficult to revoke or alter the terms of an irrevocable trust after its creation. If your financial situation changes or you wish to amend some things in the trust, you will have limited options to do so. You may require the court’s approval or the beneficiaries’ permission to change anything to do with the trust.
The associated costs and legal complexities
Establishing and maintaining an irrevocable trust can be expensive and legally complex. A lot goes into drafting the trust documents to ensure they comply with state and federal laws while catering to your specific needs. The administrative costs of an irrevocable trust can also run into a considerable sum.
Learning more about how irrevocable trusts work and the compromises involved can help you make informed decisions. Reaching out for legal guidance can also help you do everything right, maximize the benefits of these estate planning tools and avoid costly mistakes.
