What exactly is an irrevocable trust and why would one need one?
What exactly is an irrevocable trust and why would one need it? My parents are in their late 80's. Mom is somewhat independent and dad has dementia. Both are still living on their own with a caregiver who comes it for 6 hours a day to help mom with dad. They lost a lot of money a few years ago and their finances are tight. It was recommended by their new financial advisor to get an irrevocable trust, but their attorney said not to. I am confused. Thanks!
An "irrevocable trust" means what it says. Once the trust is established, it can not be revoked or changed. It is irrevocable, ie permanent. This is in contrast to a revocable trust, often called a revocable living trust, which can be revoked or changed at any time by the person who set it up, as long as that person remains mentally competent. Revocable living trusts are commonly used in estate planning as a means of avoiding probate of one's major assets, such as a home.
I can't tell why your parents' financial adviser recommended that they set up an irrevocable trust. An irrevocable trust can, under some circumstances, protect the trust assets from creditors of the person (or couple) who set up the trust. However, the trust must not have been created for the purpose of protecting assets. Also, there are strict time limits prohibiting the transfer of assets to an irrevocable trust in order to become financially eligible for government benefits, such as medicaid.
Establishing an irrevocable trust costs money and requires ongoing paperwork. First the trust document must be created. Then the trust must obtain a taxpayer ID, maintain trust financial records and file an annual trust income tax return.
I think your lawyer is correct. At the least, have your parents (your mother) ask the financial adviser what the specific benefits of an irrevocable trust would be and why they are worth the hassles that would be involved