Assets in an irrevocable trust generally don’t get a step up in basis. Instead, the grantor’s taxable gains are passed on to heirs when the assets are sold. Revocable trusts, like assets held outside a trust, do get a step up in basis so that any gains are based on the asset’s value when the grantor dies. The Biden administration would like to eliminate the step up in basis for revocable trusts and tax any appreciation at death. For irrevocable trusts, gains would be taxed when the appreciated assets are transferred to the trust.

An irrevocable trust also protects the assets from lawsuits and creditors. With the assets no longer in your name, people can’t file a claim against them. Someone who doesn’t have any long-term care insurance might use an irrevocable trust to protect the inheritance for their heirs, so the assets aren’t taken by a nursing home or Medicaid.

The protections don’t come immediately. Assets in an irrevocable trust for five years or less are still fair game for Medicaid. For creditors, it’s two years under federal bankruptcy law and longer in some states. Even your heirs are protected. If the assets are titled under the trust rather than the heir’s own name, the inheritance is shielded from claims in a lawsuit or divorce.

Irrevocable trusts often cost more to put together because they’re customized to your specific tax-planning needs and the kind of property you own. The cost to set one up typically ranges from $3,000 to $6,000, and an especially complex irrevocable trust can be even more expensive. Some irrevocable trusts are designed for a specific purpose, such as a special-needs trust for a disabled family member or a charitable trust for donating assets.

Irrevocable or not, a trust is no use to you if you never finish setting it up, and that’s a common mistake.

With our asset protection instrument, protection is immediate. Indirectly you still maintain control of the asset without owning the asset.

Contact us today for a free consultation.