The underused IRREVOCABLE TRUST

There is no doubt that the REVOCABLE Living Trust (RLT) has wide ranging popularity in South Carolina.  The probate process can be onerous and expensive, and a REVOCABLE Living Trust is oftentimes (not ALL the time) the best way to avoid the probate process. But there is another type of trust that can provide the benefit of probate avoidance, and add an extra layer of protection to your assets- The IRREVOCABLE INCOME TRUST.

The best way to understand the IRREVOCABLE TRUST is to compare it against the REVOCABLE LIVING TRUST (RLT).

The RLT is promoted by many attorneys as being an asset protection trust- but that is somewhat misleading if you consider that one of the biggest threats to your estate during your lifetime is the potential for nursing home placement that can easily cost between $65,000 and $90,00 per year. And while it is often promoted as being an asset protection trust, it does NOT protect assets from nursing home costs. Medicaid, which will pay nursing home costs for financially qualified individuals teats the RLT as an available asset topay nursing home expenses; the IRREVOCABLE TRUST is not treated the same by Mediciad. All of the assets in a RLT count towards determining eligibility for Medicaid. This is because a RLT by its very name is revocable- meaning you can access your trust assets at any time. Medicaid works under a simple rule- if you have access to assets they must be used to pay for nursing home expenses first before Medicaid will step in and pay the bills. Since an owner of a Revocable Trust can access those assets, and use them to pay for  nursing home costs, they are "countable", and are used to determine eligibility.

The RLT's primary goal is to allow probate avoidance.

An IRREVOCABLE trust has a different primary goal but with all of the benefits of the RLT. Once again, by its name, an Irrevocable Trust means that it can't be changed or amended. And despite it's name, and despite popular belief, assets in an Irrevocable Trust can be returned to the trust makers (becuase they can be distributed to other family members who can return them to you). Also, with the IRREVOCABLE TRUST there is an unlimited right to receive income from the trust for your lifetime. The assets in an IRREVOCABLETRUST also avoid the probate process when you die! 

The biggest benefit from the IRREVOCABLE TRUST that makes it more appealing than the RLT is that the assets in an IRREVOCABLE TRUST are sheltered from use to pay for nursing home expenses and creates no impediment to Mediciad eligibility.

BOTTOMLINE- the RLT is not your only estate planning trust alternative. An Irrevocable Trust can protect assets from nursing home costs AND achieve allof the the goals that the RLT intends to acheive, the most important being the avoidance of probate.