Gifting With Irrevocable Trusts?

In Estate Planning, February 2018, Steward Articles by Adam Cufr

When we talk 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, if that person dies, those gifted assets will be subject to probate in that person’s estate, which can be public and costly. 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. For example, the property will avoid probate if one dies, but it is now subject to all of the owners’ potential liabilities.

If you want to protect assets from the cost of a potential nursing home stay or to make sure that a special needs child is cared for without giving it outright to the child, then you should use an irrevocable trust. By putting assets into an irrevocable trust, rather than giving them directly to the child, you can accomplish a number of things:

The assets will not be in your name, and therefore they will not be counted against you for Medicaid purposes;

The assets will not be in any child’s name (which would cause them to lose their benefits if they have special needs);

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);

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;

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 purposes; and

The trust can allow for co-trustees, which allows the trust assets to be co-managed and for the co-trustees (usually your 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.



Adam Cufr, RICP® (Retirement Income Certified Professional®) is a financial advisor and founding principal of Fourth Dimension Financial Group, LLC providing personal finance and retirement planning services. Adam is a Columnist for Retirement Advisor Magazine. He is also a sought-after media commentator and thought leader. Adam was named one of The 20 Most Creative People In Insurance in 2015 and is a columnist for Retirement Advisor Magazine and the author of Off the Record – Secrets to Building a Successful Retirement and a Lasting Legacy.

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