IRREVOCABLE TRUSTS

IRREVOCABLE TRUSTS

Irrevocable Trusts in Louisiana

The most effective estate planning strategies often involved an Irrevocable Trust. Irrevocable trusts are not for the wealthy or powerful. These trusts are commonly used by people of all income and asset levels for asset protection purposes (including nursing home poverty) and tax planning purposes.  If you think about it, those who can least afford to take a hit stand to benefit the most from Irrevocable Trust planning.

Is an Irrevocable Trust right for you?  A careful analysis of your goals, concerns, and life circumstances is necessary to determine whether a Irrevocable Trust is an appropriate solution for your estate planning or asset protection needs.  An Irrevocable Trust could be an excellent planning solution for you, but review the information set forth below and then consult with an experienced Irrevocable Trust Lawyer for further assistance.

What is an Irrevocable Trust?

An Irrevocable Trust that cannot be “revoked” making it impossible to return assets back to the Settlor.  This status differs from a Revocable Trust because the trust is permanent.  However, the irrevocable status of the trust does NOT mean that the beneficiaries, trustees, and other terms  and conditions of the trust cannot be changed.  Therefore, a Settlor can reserve a significant amount of control over an Irrevocable Trust.

How do Irrevocable Trusts Work?

A Trust is a contract you make with yourself called a Trust Agreement that involves three parties: (1) a Settlor; (2) a Trustee; (3) a Beneficiary.  The same person can be the Settlor, Trustee, and Beneficiary.  The Trust Agreement provides that the Trustee is hold and manage assets for the benefit of the Beneficiaries.  After the Trust Agreement has been signed, the Settlor transfers assets to the Trust, which is referred to as the process of “trust funding.”  Assets that have been transferred to a properly drafted Irrevocable Trust cannot be taken by future creditors of a Settlor, including Medicaid.

What are the Advantages of an Irrevocable Trust?

Unlike a Revocable Trust, a properly drafted Irrevocable Trust can provide significant asset protection and tax avoidance benefits.

What are the Types of Irrevocable Trusts?

There are potentially as many times of Irrevocable Trusts as there are flavors of ice cream.  Irrevocable Trusts are flexible and should be tailored to suit the unique circumstances and concerns of the Settlor.  The following is a list of the different types of trusts we routinely use in practice, as well as a link for more detailed information on each type of trust.

  • Irrevocable Life Insurance Trust (ILIT): An Irrevocable Trust designed to own and receive life insurance proceeds and to remove the value of a life insurance policy from the gross taxable estate of an insured.
  • Medicaid Asset Protection Trust (MAPT): An Irrevocable Trust designed to protect assets from long-term care costs and avoid nursing home poverty.
  • Domestic Asset Protection Trust (DAPT): An Irrevocable Trust designed to protect assets from lawsuits and other unforeseeable claims against the Settlor.
  • Dynasty Trust: An Irrevocable Trust designed to both keep assets in the family line and to avoid the Rule Against Perpetuities, which is a maximum term for the existence of a trust.  A true Dynasty Trust last forever.
  • Grantor Trust: An Irrevocable Trust that remains taxable to the Settlor for Federal income tax purposes, but not necessarily for Federal Estate Tax purposes.  A pure Grantor Trust would be considered an incomplete gift for Federal Gift Tax purposes.  An Intentionally Defective Grantor Trust would be considered a completed gift for Federal Gift Tax purposes and, therefore, excluded from the Gross Estate of the Settlor at death.
  • Grantor Retained Annuity Trust (GRAT): An Irrevocable Trust that is intended to gradually remove value from the gross estate of a Settlor who has Federal Estate Tax issues. The Settlor retains an income stream (an annuity) for a term of years. The taxable gift is based upon the remainder interest after subtracting the value of the annuity.
  • Qualified Personal Residence Trust (QPRT): An Irrevocable Trust designed to remove the value of a principal residence from the gross estate of a Settlor.  The concept works like a GRAT because the Settlor reserves the right to live in the house for a term of years with the give being based on the value of the remainder interest.
  • Charitable Remainder Annuity Trust (CRAT):  A CRAT is used for charitable planning. The Settlor makes a donation to a CRAT and reserves an annuity for a term of years.  The value of the remainder interest to the charity generates a charitable deduction for the Settlor.
  • Charitable Remainder Unitrust (CRUT): A CRUT is similar to a CRAT, except the reserved Interest to be returned to the Settlor is based on the fair market value of the assets of the CRUT determined annually instead of a fixed annuity amount determined at the inception of the Trust.
  • Marital Trust: A Marital Trust is often used to provide asset protection for a surviving spouse from lawsuits, unforeseeable claims, and long-term care expenses. Restrictions can also be included in the event of the remarriage of a surviving spouse to ensure children receive intended legacies.  A Marital Trust can optimize any unused Federal Estate Tax exemption amounts by using A / B Trusts (also known as a Credit / Bypass Trusts).
  • Spousal Lifetime Access Trust (SLAT): A SLAT is an Irrevocable Trust designed to provide lifetime asset protection for a spouse, as well as tax benefits.
  • Voting Trust: A Voting Trust is an Irrevocable Trust designed to authorize someone to vote shares of stock or closely held business interest.  Stock or other business interest is transferred to the Voting Trust which grants the Trustee voting power for a term of years, or until removed by the Settlor.
  • Qualified Sub-chapter S Trust (QSST) or Electing Small Business Trust (ESBT): A QSST and ESBT are Irrevocable Trusts designed to own an interest in a S-corporation, or an entity that is taxed as an S-corporation.  Normally, only individuals (humans) can own S-corporation stock.  A QSST or ESBT is an exception to the rule.
  • Pet Trust:  A Pet Trust allows a pet owner to plan for the care of their pet, whether a dog, cat, horse, or other animal.  Utilizing a Pet Trust ensures that whoever you entrust with the care of your beloved pet will have sufficient assets and instructions for the life of your pet.
  • Gun Trust:  A Gun Trust is designed to purchase and hold Firearms required to be registered under the National Firearms Act.  Multiple beneficiaries of a Gun Trust can be named allowing multiple people to access and use weapons owned by the Gun Trust.
  • ​Special Needs Trust (Supplemental Needs Trust):  A Special Needs Trust is an Irrevocable Trust designed to protect and preserve governmental benefits, such as Medicaid or SSI, for beneficiaries who have special needs and will likely need continuing care.  A Special Needs Trust can also be utilized in Medicaid Planning.

 

Does a Trustee Need a Lawyer?

A Trustee is a fiduciary, which means that the Trustee owes a duty of care and a duty of loyalty to the beneficiaries of a Trust.  A Trustee is liable to the beneficiaries for any breach of duties and the prescriptive period for lawsuits against a Trustee is ten (10) years!  Guidance from an experienced Trust Attorney helps to keep a Trustee on the right track and minimize the potential for Trust litigation.

What is a Domestic Asset Protection Trust?

Louisiana law provides ZERO creditor protection for self-settled trusts (i.e., a trust established by a person with their own assets for their own benefit).  However, a handful of states, such as Nevada, Alaska, Delaware, and now even Mississippi (“DAPT States”), have adopted Domestic Asset Protection laws that allow the use of Domestic Asset Protection Trusts (“DAPTs”).  DAPTs afford creditor protection to self-settled trusts (i.e., a Trust established by a person for their own benefit).  A person does not need to be resident of a DAPT State to use a DAPT, but must employee a Trustee located in a DAPT State.

In order to ensure that a Trustee located in a DAPT State remains accountable to both the Settlor(s) and the Beneficiary(ies), a person can appoint a Louisiana-based Trust Protector.  CLICK HERE to learn more about Trust Protectors.

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Protecting Everything You Own and Everyone You Love…

Whether you need a simple irrevocable trust, or require higher level estate planning to attain more complicated goals, we provide comprehensive, experienced representation.  Properly planning and protecting your estate is a necessary step to protect for your family or loved ones in the event of death or incapacity.  If you have questions about Irrevocable Trusts, or any other estate planning topic, please contact our office to schedule a free consultation, or use the link below to schedule your Free 15-Minute Call with an Estate Planning Attorney.

Irrevocable Trusts

  • Overview
  • Irrevocable Life Insurance Trust (ILIT) 
  • Medicaid Asset Protection Trust (MAPT)
  • Domestic Asset Protection Trust (DAPT)
  • Dynasty Trust
  • Grantor Trust
  • Grantor Retained Annuity Trust (GRAT)
  • Qualified Personal Residence Trust (QPRT)
  • Charitalbe Remainder Annuity Trust (CRAT)
  • Charitable Remainder Unitrust (CRUT)
  • Marital Trust
  • Spousal Lifetime Access Trust (SLAT)
  • Voting Trust
  • Qualified Sub-chapter S Trust or Electing Small Business Trust
  • Pet Trust
  • Gun Trust
  • Special Needs Trust (Supplemental Needs Trust)

J. Graves Theus, Jr. is the founding member of Theus Law Offices, and a fourth generation Louisiana lawyer with deep roots in the community. He received an LL.M. in Tax Law from Boston University School of Law in 1997, after graduating, cum laude, from Gonzaga University School of Law in 1996.  Graves is licened to practice law in three states: Louisiana, Washington, and Alaska (a domestic asset protection jurisdiction).  He is certified by the Louisiana State Board of Legal Specialization as a Specialist in Tax Law, as well as Estate Planning and Administration, and is an approved title agent. Graves is also accredited by the Veterans Administration to assist veterans with their pension claims.

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