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When we are speaking with our clients about how to protect their financial legacy, we will often recommend that property be gifted into an Irrevocable Trust. Invariably, the client will ask whether they can just gift property to the children instead. After all, wouldn't that be simpler and less expensive?
The answer to this question is “yes,” a person CAN gift property directly to the kids and forego the Irrevocable Trust. The better question, however, is whether you SHOULD?
In this article, we'll take a look at why an Irrevocable Trust is usually the preferred way of holding gifted property.
When property is gifted to an individual instead of held in an Irrevocable Trust, the gifted assets are at risk. Having the asset owned by the individual will subject that asset to that person's liabilities (debts, health care expenses, lawsuits, divorce, etc). Also, when that person dies, the gifted asset will be subject to Probate in that person's estate. Some may suggest that a solution is to gift the property to several people, but the more people's names you put on an asset, the greater the risk (the property will avoid Probate if one dies, but it is now subject to all of the owners' potential liabilities).
If a parent wants to protect assets from the cost of nursing home care or to make sure that a special needs child is cared for without giving it outright to the child, then they should use an Irrevocable Trust. By putting assets into an Irrevocable Trust, rather than giving them directly to a child, the parent can accomplish a number of things.
As you can see, using an Irrevocable Trust to gift property can be much better than gifting property outright to children or others. However, it is extremely important to ensure that the trust is drafted properly and that the proper procedures are used to ensure the most efficient transfers.
If you are interested in talking about how an Irrevocable trust can help you, please call our office to set up an appointment and meet with one of our attorneys.
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