How Does an Irrevocable Trust Work?

Each irrevocable trust needs a grantor or creator who signs the trust agreement and brings the irrevocable trust into existence as a legal document. The grantor must appoint a trustee or trustees who will implement the terms of the trust according to the trust agreement. The trustee can be a person or an entity who is in charge of managing the assets of the irrevocable trust for the benefit of the beneficiaries. The beneficiaries are the people who will receive the assets of the trust after the grantor passes away.

In a Medicaid trust, the grantor or trust maker chooses a person or entity to manage the trust. The grantor also names beneficiaries. The grantor gives up the ability to modify the trust because it is an irrevocable trust. When the grantor gives up the ability to modify the Medicaid trust, the trust owns the assets and the applicant’s Medicaid eligibility cannot be affected. A Medicaid protection trust holds assets so an elderly New Jersey resident can still receive nursing home benefits through Medicaid.

Can You Change an Irrevocable Trust in New Jersey?

In some cases, someone would like to modify or revoke an irrevocable trust. Typically, modifying an irrevocable trust requires a court order from a New Jersey court. Courts seek to protect beneficiary rights when it comes to irrevocable trusts. The Uniform Trust Code adopted by New Jersey has greatly simplified the process of amending a trust. Modifying or amending a trust requires a court order or the consent of all parties involved through a Non-Judicial Settlement Agreement (NJSA). To obtain court approval, you must file an order to show cause. Part of the process is giving notice to all of the interested parties. You must convince the New Jersey court that modifying the irrevocable trust is appropriate in your situation. The process of amending an irrevocable trust is often expensive and can result in some delays.

The other option for modifying the irrevocable trust is to get the consent of all of the parties involved. The creator or grantor of the trust and all of the trust beneficiaries must agree to the change to the irrevocable trust. Irrevocable trusts are focused on beneficiary rights. The sole purpose of the trust is to make sure that beneficiary rights are protected. When the modification is in opposition to the main purpose of the irrevocable trust, you may not be able to modify the trust. Non-Judicial Settlement Agreements can only be applied to trusts that are not charitable.

How Much Does it Cost Create an Irrevocable Trust?

Irrevocable trusts are valuable estate planning tools. Indeed, irrevocable trusts allow people to protect their assets while qualifying for Medicaid and avoiding tax implications. When an irrevocable trust attorney creates a trust, the process typically costs $3,000 or more. The cost of creating irrevocable trust depends on the complexity of the estate. While hiring an irrevocable trust attorney is expensive, doing so can save you and your loved ones a significant amount of money in the long run. In the end, hiring a skilled irrevocable trust attorney to create your trust will help you and your loved ones in the long term.

Can You Dissolve, Revoke, or Terminate an Irrevocable Trust?

What happens when the grantor of the trust wants to dissolve or terminate an irrevocable trust? When a grantor creates an irrevocable trust, the grantor loses his or her right to revoke the trust. The trustees, not the grantor, are in charge of managing the assets of the trust. The assets are owned by the irrevocable trust itself, not the grantor, and are managed by the trustees. Nonetheless, the grantor can revoke an irrevocable trust in some specific circumstances. New Jersey adopted the Uniform Trust Code which allows grantors to revoke an irrevocable trust but only when the trustee and beneficiaries all agree to revoke the trust.

What Does an Irrevocable Trust Mean?

The term irrevocable trust refers to a trust that the grantor cannot change, except under narrow legal circumstances. Trusts are often thought of as alternatives to a will. The grantor or settlor places his or her assets into the trust. Each trust comes with its own rules and regulations, as found in the trust agreement. The trust agreement lays forth how the grantor or creator of the trust would like their assets to be distributed to their appointed beneficiaries. Irrevocable trusts cannot be revoked except in rare circumstances, and with court approval when all of the interested parties agree. While irrevocable trusts can be extremely beneficial, they also come with some potential downsides. For example, when a grantor moves significant assets into a revocable trust, the grantor cannot access those assets.

An unexpected circumstance or financial need could arise that requires payment of a large sum. In this situation, the creator of the trust would not be allowed to access the funds in the irrevocable trust and use them to pay the bill. Once the trust owns the assets, the creator of the trust can no longer access or use those assets.

Can You Amend an Irrevocable Trust?

Amending an irrevocable trust is much more challenging than amending a revocable trust. The appropriate method for modifying a trust varies depending on the situation. The terms of the trust agreement, the length of irrevocability, the identity of any trust beneficiaries, and the governing laws of the state will all influence how easy it is to amend the trust. Amending an irrevocable trust may not be the best choice, depending on the circumstances.

If you are interested in amending an irrevocable trust, speaking with a skilled lawyer can be helpful. At Giro, LLP, Attorneys at Law, our estate planning lawyers have in-depth knowledge when it comes to irrevocable trusts. After evaluating your circumstances, we can advise you as to whether or not you should amend the trust. If so, we can help you attempt to amend the irrevocable trust through court order or through receiving the consent of all interested parties, including the creator of the trust, the trustee or trustees, and the beneficiaries.

Are Irrevocable Trusts Taxable?

One of the key benefits of creating an irrevocable trust is to avoid taxes. The irrevocable trust itself owns the assets in the trust, not the descendants of the creator of the trust. Thus, when the creator of the trust dies, the descendants will not need to pay taxes. Those who create an irrevocable trust can avoid capital gains taxes. When the assets are already owned by the irrevocable trust, they are not subjected to capital gains taxes.

When you create a regular will, the beneficiaries of your will are subject to paying estate taxes when they inherit the property upon your debt. In some unfortunate situations, the beneficiaries of your assets may have difficulty paying inheritance taxes. Placing your assets into an irrevocable trust will help make sure that your beneficiaries will not face the hardship of paying extensive taxes after your death. Creating an irrevocable trust will help you ensure that your loved ones are looked after in the event of your death and reduce your worry about what will happen to your assets after you pass away.

Our Experienced Estate Planning Lawyers can Help

At Giro, LLP, Attorneys at Law, our lawyers understand the many benefits of creating a trust. We have the skills and experience necessary to draft well-written trusts that benefit our clients and their families for decades or years to come. Our Hackensack, New Jersey, trust lawyers can help you determine whether or not you should add an irrevocable trust to your estate plan. We focus our work on helping our clients achieve their estate planning goals. We will help you understand the benefits of creating an irrevocable trust, both during your life and after you pass away. Contact our irrevocable trust creation law firm today to schedule your initial consultation.