After a Last Will and Testament, a trust is one of the most common additions to a well-rounded estate plan. If you decide to add a trust to your estate plan, you will need to decide which type of trust to create. To decide which type of trust you should create you need to have a better understanding of how different types of trusts can help you. For example, the Illinois trust attorneys at Hedeker Law, Ltd. explain why you might need an irrevocable living trust.
Testamentary vs. Living Trusts
All trusts are broadly divided into two categories – testamentary and living trusts. A testamentary trust is one that does not activate until the death of the Settlor, usually triggered by a term in the Settlor’s Last Will and Testament. A living trust, as the name implies, is a trust that activates as soon as all the formalities of creation are in place.
Revocable vs. Irrevocable Trusts
Living trusts can be further sub-divided into revocable and irrevocable living trusts. A revocable living trust is one that can be modified, amended, terminated, or revoked at any time, and for any reason, by the Settlor whereas an irrevocable living trust cannot be modified or revoked for any reason by the Settlor once the trust is active. Because a testamentary trust does not activate until the death of the Settlor it is always revocable up to the point of the Settlor’s death.
Reasons to Use an Irrevocable Living Trust
As the Settlor of the trust, you determine which type of trust to create. Of course, you should always consult with an experienced trust attorney before deciding which type of trust is needed for your stated goal. In the meantime, however, it may be beneficial to learn some of the more common reasons to use an irrevocable living trust, including:
- Asset protection – assets transferred into an irrevocable living trust become the property of the trust once the transfer is complete. As such, the Settlor no longer has a legal interest in the assets held in the trust which means that the assets are not accessible by creditors of the Settlor, a spouse in a divorce, or others who might threaten the assets. That does not mean, however, that you cannot continue to benefit from the trust. While there are a number of specialized trusts that are used as asset protection tools, the important common thread is that they are all irrevocable living trusts.
- Medicaid planning – one common Medicaid planning tool that can help protect your assets is an irrevocable Medicaid trust. Assets transferred into such a trust remain out of the reach of the Medicaid “countable resources” eligibility requirements. The trust must be set up far enough ahead of time, however, to avoid running afoul of the five-year look-back period.
- Funeral and burial planning — although you may have discussed your wishes with regard to your funeral and burial with a spouse, adult child, or other loved one, that discussion does not guarantee that your wishes will be honored. Your confidant could forget the details amidst his/her grief or could disagree with your wishes and intentionally not honor them. Creating an Irrevocable Life Insurance Trust (ILIT) resolves that potential problem and addresses the funding for your funeral. An ILIT is a special type of trust that is funded by the proceeds of a life insurance policy. As the Settlor, you create the trust and appoint a Trustee to administer the trust. You then purchase or transfer in a life insurance policy, the proceeds of which pay out into the trust upon your death. Those proceeds then fund your funeral service. Along with providing the funding, however, you can also use the trust terms to ensure that your burial and funeral are carried out according to your wishes. Your Trustee will be legally obligated to abide by those terms once the trust activates. An ILIT, therefore, provides both the funding for your funeral and gives you the peace of mind that comes from knowing your wishes will be honored after you are gone.
Contact Illinois Trust Attorneys
For additional information, please join us for an upcoming FREE seminar. If you have additional questions or concerns about irrevocable living trusts, contact an experienced Illinois trust attorney at Hedeker Law, Ltd. by calling (847) 913-5415 to schedule an appointment.