Why Use an Irrevocable Trust?
June 20, 2017 Posted by Richard Chamberlain

When we are speaking with our clients about how to protect their financial legacy, we will often recommend that property be gifted into an Irrevocable Trust. Invariably, the client will ask whether they can just gift property to the children instead. After all, wouldn't that be simpler and less expensive?

The answer to this question is “yes,” a person CAN gift property directly to the kids and forego the Irrevocable Trust. The better question, however, is whether you SHOULD?

In this article, we'll take a look at why an Irrevocable Trust is usually the preferred way of holding gifted property.

Why not just gift the property directly to a child or other person or entity?

When property is gifted to an individual instead of held in an Irrevocable Trust, the gifted assets are at risk. Having the asset owned by the individual will subject that asset to that person's liabilities (debts, health care expenses, lawsuits, divorce, etc). Also, when that person dies, the gifted asset will be subject to Probate in that person's estate. Some may suggest that a solution is to gift the property to several people, but the more people's names you put on an asset, the greater the risk (the property will avoid Probate if one dies, but it is now subject to all of the owners' potential liabilities).

If a parent wants to protect assets from the cost of nursing home care or to make sure that a special needs child is cared for without giving it outright to the child, then they should use an Irrevocable Trust. By putting assets into an Irrevocable Trust, rather than giving them directly to a child, the parent can accomplish a number of things.

  1. the assets will not be in the parent's name, and therefore they will not be counted against them for Medicaid purposes;
  2. the assets will not be in any child's name(which would disqualify the child from public assistance if the child has special needs);
  3. the assets will not be in the child's name, and are therefore not subject to the child's potential liabilities (for example, divorce, disability, creditors);
  4. the Irrevocable Trust keeps the assets out of Probate – if the child dies, a new Trustee steps in and manages the property in accordance with the trust instructions;
  5. the trust provides clear written and enforceable instructions for how the trust assets are to be used, ensuring that the assets will be used for their intended purpose and cannot be wasted; and
  6. the trust can allow for Co-Trustees of the assets without subjecting the assets to individual or joint ownership. This allows for the assets to be co-managed and for the Co-Trustees (usually the kids) to work together and share the responsibility.;

As you can see, using an Irrevocable Trust to gift property can be much better than gifting property outright to children or others. However, it is extremely important to ensure that the trust is drafted properly and that the proper procedures are used to ensure the most efficient transfers.

If you are interested in talking about how an Irrevocable trust can help you, please call our office to set up an appointment and meet with one of our attorneys.

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About the author
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Richard Chamberlain Richard M. Chamberlain is the founder and principal attorney of the Chamberlain Law Group, Ltd. and is a member of the Ohio State Bar Association section on Estate Planning, Trust and Probate Law. He has an undergraduate degree in Economics, magna cum laude, from Tulane University (1989) and received his law degree from Florida State University (1992), where he was a member of the Law Review. Richard was born in Port Sulfur, Louisiana (about an hour south of New Orleans – yes, there is land an hour south of New Orleans) in 1967. When he was 3, his family moved to Baton Rouge, where they lived until he was in college at Tulane University in New Orleans. After graduating from Tulane, Richard attended The Florida State University College of Law in Tallahassee, Florida, where he earned his law degree in 1992. While practicing law in Tampa, Florida, Richard met a beautiful girl named Kelly Sancraint (a transplant originally from Toledo, Ohio). They were soon married, and as they began their family, they made the decision in 1998 to move back to the Toledo area to be near family. Richard founded his own law practice (“The Law Office of Richard M. Chamberlain, Ltd.”) in Perrysburg, Ohio in 2007, focusing on the practice areas of estate planning and estate administration, business formation and planning, elder law and real estate law. In 2012, with the addition of his first associate attorney, the name of the firm was changed to “Chamberlain Law Group, Ltd.” Richard is a member of WealthCounsel, a cooperative alliance of nationally recognized estate planning attorney members from across the country. as well as being a member of The Rotary Club of Perrysburg and the Perrysburg Chamber of Commerce. Richard also serves on the Board of the Perrysburg Schools Foundation, and he serves in several ministries at CedarCreek Church. Richard and Kelly have 4 daughters, 1 son-in-law, and 1 granddaughter, who keep them both very busy with their varied interests.