An irrevocable trust can serve as a strategic way to protect wealth, reduce estate taxes, or achieve other critical estate planning goals. However, these trusts require careful planning and creation for the expected benefits to materialize. Because they are incredibly difficult to alter by design, they should be drafted and implemented with the help of an experienced Santa Fe irrevocable trust lawyer.
New Mexico Financial Law can provide you with a knowledgeable attorney who can assist you with irrevocable trust planning. Whether your goal is to protect assets from creditor claims, gain tax advantages, or increase the chances that you can qualify for needs-based programs like Medicaid, we can provide you with the needed services and information.
With our help, you can more clearly define your goals and build the perfect trust for your unique situation. Start the process and prepare for a brighter financial future when you call (505) 503-1637 or contact us online to schedule a no-obligation case review.
Asset protection trusts are one of the most common types of irrevocable trusts. As their name implies, these trusts can be used to shield assets from unwanted claims.
Consider that one in three physicians is sued for malpractice at some point in their career. Other occupations face a similarly high risk of litigation, including developers, financial advisers, architects, engineers, property managers, nurses, and owners of sole proprietorships. If you’re in a vulnerable industry, a judgment could result in a plaintiff not only bankrupting your commercial enterprise but also, potentially, accessing your personal finances. Creditor claims could even threaten your financial solvency.
To dramatically reduce the risk of a creditor (or a court award recipient) raiding your personal finances, you can form an asset protection trust. The level of asset protection offered by the trust depends on many factors. These factors can include the jurisdiction where the trust was formed, whether the trustee has a high level of discretion to make distributions, and the nature of the creditor’s claim. Refer to an attorney from a reputable Santa Fe irrevocable trust law firm to discuss the best strategies to use to shield the assets in your estate.
There are two main types of asset protection trusts: domestic and offshore.
A domestic asset protection trust is formed in the United States. Different states offer different levels of asset protection, and not every state provides the level of protection needed to meaningfully shield said assets from claims.
Currently, just 20 states provide statutes that make an asset protection trust in that state a viable strategy for wealth protection. New Mexico does not appear on this list. However, individuals can form an asset protection trust in a state other than the one where they reside if that state’s laws meet their requirements.
Speak to a Santa Fe irrevocable trust lawyer for more information and advice on whether forming a domestic asset protection trust could be a sound decision.
These types of irrevocable trusts offer even more robust protections compared to a DAPT. For example, some countries require that a creditor obtain a court order in that country’s legal system for them to compel a financial entity to release funds from an OAPT.
Common countries where offshore asset protection trusts are formed include:
Of these, the Cook Islands are a notable choice because they may, in some cases, allow grantors to access and modify the trust. They may be able to directly manage the property inside the trust, modify its terms, change or remove a trustee, or receive regular distributions as a beneficiary. The country’s status as a popular site for OAPTs has led to the subset known as a “Cook Islands trust.”
Disadvantages of an OAPT include its cost and complexity to set up. In cases where the grantor has limited power to appoint a trustee or modify the terms of the trust, they may be unable to access their assets and use them in the way they intended. Accordingly, careful structuring and creation of the OAPT with the help of an irrevocable trust attorney in Santa Fe is recommended.
A trust is a special legal arrangement that can own property. All trusts involve three main parties:
A grantor can optionally install a trust protector, as well. This person oversees the trustee, ensuring they uphold their fiduciary duties. The protector can also assist the trustee with certain administration, strategy, or accounting tasks, depending on the arrangements set by the grantor.
Trusts can be revocable or irrevocable. A revocable trust can be shut down or modified by the grantor at nearly any time. Irrevocable trusts, on the other hand, cannot be altered or dissolved except under highly specific conditions.
While revocable trusts offer flexibility, they aren’t remarkably different from a bank account or other means of transferring property. Their most notable quality is that they remove this property from the grantor’s probated estate. This capability makes them a popular estate planning tool. Using a living revocable trust, the trustee can transfer property to beneficiaries without subjecting it to probate, creditor claims, or public disclosures.
An irrevocable trust offers the same probate avoidance characteristics, but it may also have other desirable qualities. Because the grantor cannot easily modify the trust or access its contents outside a distribution (in most cases), an irrevocable trust may be able to qualify for special legal classifications or exemptions.
A common example of a special irrevocable trust is an asset protection trust. This arrangement means that the grantor cannot easily access their money held in the trust until a trustee transfers it to them. Accordingly, a creditor may be unable to force the grantor or another party to take a distribution from the trust to pay a debt.
Read on to learn more about the most popular types of irrevocable trusts and the benefits they could offer. If you have questions about a specific type — or you are interested in using a personalized strategy to protect your hard-earned wealth — be sure to reach out to a Santa Fe irrevocable trust lawyer for guidance.
A “Medicaid” trust can take the form of a Medicaid asset protection trust or a Miller Trust.
MAPTs are used to avoid having assets reclaimed through estate recovery after receiving Medicaid benefits covering long-term services and supports.
Normally, state Medicaid organizations will seek to recover the costs of covered care from the patient’s estate after they pass. This estate recovery action can involve placing a lien on a family home, which allows the state to recoup some of its costs.
Importantly, state Medicaid organizations also look for transfers made below market value (i.e., gifts) that occurred within a five-year window preceding the start of the patient’s benefits. They may reverse transfers of money and property if they occur during this period, re-subjecting the assets to possible estate recovery.
By creating a MAPT and transferring property to it at least five years before the estimated need for Medicaid assistance, households can potentially meet program resource limits without losing hard-earned assets to estate recovery.
A Santa Fe trust lawyer can assist you with protecting assets from possible Medicaid-related estate recovery, but the key is to be proactive and form a trust well in advance of the need for care.
A Miller trust — also called a qualified income trust (QIT) — is essentially a bank account that receives income that would normally go to a patient receiving Medicaid benefits. In situations where this money would otherwise cause the patient to go over their income or resource limits, it can instead be diverted to this account.
The money in a Miller trust can be used for qualified, necessary expenses. Some examples include medical co-pays, Medicaid premiums, and other services, equipment, devices, or medications not covered directly by the program. Trust funds can also provide a monthly needs allowance for the patient and a monthly maintenance allowance for a spouse still living at home.
These trusts have highly specific requirements to avoid violating program rules or federal laws. Get in touch with a Santa Fe irrevocable trust lawyer if you want to form one in an attempt to qualify for Medicaid benefits.
A special needs trust is very similar to a Miller trust. It can receive funds — including inheritances, gift transfers, or ordinary income — that would normally go to an individual with special needs. Transferring the money to the trust instead of to the individual can enable them to still qualify for needs-based programs like Supplemental Security Income (SSI) and Medicaid.
Like a Miller trust, the money in a special needs trust cannot go towards expenses that would normally be covered by the program’s benefits (including housing). Instead, the money can provide for clothing, education expenses, transportation, travel, entertainment, and other non-essential costs.
There are multiple types of special needs trusts. There are also many considerations that must be taken into account to avoid causing an individual with special needs to be disqualified from the program they rely upon. Accordingly, be sure to refer to an irrevocable trust lawyer in Santa Fe for guidance with setting one up.
The following irrevocable trusts may also be able to provide your household with specialized advantages:
Speaking generally, these trusts must typically follow strict rules and structures to provide the expected benefits while complying with state and federal laws. You can get assistance with selecting the right trust and making the proper arrangements by seeking the help of an experienced attorney at a reputable trust law firm in Santa Fe.
Irrevocable trusts are, by design, difficult to alter. However, trust modification is possible under the following circumstances:
Irrevocable trust modification should be undertaken carefully. The mechanisms needed to change the trust can be complex, time-consuming, and costly — especially if court intervention is required.
Further, the new trust rules may still not provide the desired functionality or benefits. Accordingly, make sure to refer to an estate planning law firm in Santa Fe to build a strategy for success.
Irrevocable trusts may take more time and effort to set up, but the results can be well worth it. If you suspect that your goals for asset protection, Medicaid planning, tax reduction, or estate planning in general can be met with one, New Mexico Financial Law is ready to help you get started.
Call (505) 503-1637 or contact us online to schedule a no-obligation consultation with an experienced Santa Fe irrevocable trust attorney. They can help you learn about your options and start your journey down the path of building an enduring legacy.
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