When it comes to protecting your legacy and preparing for long-term care, irrevocable trusts are one of the most effective tools available. Despite their powerful benefits, they’re often misunderstood and, unfortunately, sometimes misused. That’s where the “hidden dangers” come in. The risks associated with irrevocable trusts usually stem not from the trusts themselves, but from poor planning, miscommunication, or working with professionals who don’t understand the complexities involved.
At McCarthy Law, we focus our practice on estate planning, elder law, and Medicaid asset protection. We use irrevocable trusts every day to help clients protect what they’ve worked hard for and ensure those assets are preserved for future generations. With proper planning and experienced guidance, these trusts can be a cornerstone of your long-term care strategy and a lasting gift to your loved ones.
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Why Irrevocable Trusts Are Worth Considering
Irrevocable trusts can:
- Shield assets from long-term care costs
- Preserve a family home or vacation property
- Minimize estate tax and capital gains tax exposure
- Create a structured legacy for your children and grandchildren
When designed correctly, these trusts allow clients to qualify for Medicaid without sacrificing everything they’ve earned over a lifetime. They give families peace of mind, knowing that care needs can be met without losing the family home or draining available assets.
So where do the “hidden dangers of irrevocable trusts” come in? Let’s explore a few key considerations and how they can be successfully addressed with thoughtful planning.
1. Loss of Control, But a Gain in Protection
It’s true that irrevocable trusts involve giving up some direct control. Once assets are placed in the trust, they belong to the trust, not to you individually, and the trust requires a trustee other than yourself – often a trusted adult child. But for clients who are focused on asset protection and Medicaid planning, this is exactly the point: the separation helps prevent those assets from being counted against you if long-term care becomes necessary.
At McCarthy Law, we help clients understand exactly what rights they’re giving up and what protections they’re gaining, as well as the allowable loop holes and options to ensure they still maintain some level of control and oversight. We also carefully select and support Trustees to ensure that assets are managed responsibly and in line with your long-term wishes.
2. They’re Not One-Size-Fits-All (And That’s a Good Thing)
Irrevocable trusts are powerful because they are tailored to your specific goals. That’s why it’s essential to work with attorneys who understand how to build in strategic flexibility while still protecting your assets. While these trusts are harder to modify once established, our team designs them to anticipate future needs, including blended family dynamics, evolving tax laws, and shifting care costs, as well as the potential for the future sale of property held in the trust.
3. Tax Implications That Require Skilled Planning
Yes, there are tax considerations. Trusts can hit high income tax brackets more quickly than individuals, and recent IRS rulings have impacted step-up in basis rules. But these aren’t reasons to avoid irrevocable trusts—they’re simply reminders that tax-smart planning matters. We coordinate with your accountant or financial advisor to structure your trust in the most efficient way possible, taking into consideration both estate and capital gains tax considerations.
4. Trustee Selection Is Key, And We’ll Help You Get It Right
Your Trustee will play an important role in managing assets, so careful selection is essential. Whether it’s a trusted family member or a professional fiduciary, we’ll guide you through the decision and provide tools to ensure the Trustee is supported and accountable. A well-chosen Trustee protects both your legacy and your loved ones.
5. Medicaid Planning Is Complex, But We Do It Every Day
Irrevocable trusts are a cornerstone of Medicaid asset protection. They help clients qualify for long-term care benefits without losing their home or life savings. However, they must be structured and funded properly to comply with Medicaid rules and avoid delays in eligibility.
That’s why this is not a DIY project. Our team focuses exclusively on this area of law. We know the regulations, we understand the five-year look-back period, and we prepare your trust with those rules in mind from day one.
6. They Require Ongoing Attention, But We’ll Guide You Through It
Irrevocable trusts aren’t “set-it-and-forget-it” tools. They require thoughtful administration and coordination with your broader estate plan. Our team provides ongoing guidance to ensure your trust stays compliant and aligned with your wishes as life changes. Thinking about selling a property held in the trust? We’ll help you navigate the process. Need to access some assets while keeping protections in place? We’ll explore creative options that fit your goals.
While the phrase “the hidden dangers of irrevocable trusts” can sound intimidating, those risks are avoidable with proper planning. At McCarthy Law, we focus on anticipating real-life scenarios—good and bad—so your plan can adapt to whatever comes next.
7. Liquidity and Borrowing—We Help Plan Ahead
It’s true that assets placed in an irrevocable trust may not be easily accessed or used as collateral, but that doesn’t mean you’ll be left without options. At McCarthy Law, we design trusts with your full financial picture in mind. That means planning ahead to ensure you retain access to liquid funds outside the trust, while still protecting key assets. With the right structure, you can safeguard your future and maintain the flexibility to meet life’s needs as they arise.
8. Creditor Protection Isn’t Automatic, But It Can Be Strong
An irrevocable trust can offer excellent protection from future creditors, lawsuits, and even divorce claims when done right. We ensure your trust is properly drafted, funded, and administered so it will stand up to scrutiny and fulfill its purpose.
Read More: What is 5-Year Look-Back Period and How Does it Affect Medicaid Long-Term Care Eligibility?
Are Irrevocable Trusts Dangerous? Only If You Don’t Understand Them
The term “The Hidden Dangers of Irrevocable Trusts” may sound intimidating but the real danger lies in using these tools without sound guidance. At McCarthy Law, we believe in fully educating our clients so they can make informed decisions with confidence. Our Estate Planning Attorneys take the time to educate clients on the pros and cons of each option so that they can choose the path that aligns best with their goals for the future. When done right, an irrevocable trust is not a risk, it’s a relief.
Our firm has helped thousands of families across Rhode Island preserve their legacy, access needed care, and sleep better at night knowing that what they’ve worked their whole life to build won’t be lost to long-term care costs.
Want to Learn More?
We offer free, attorney-led estate planning webinars and one-on-one discovery calls to help you understand your options. There’s no pressure, just real education from a team that is committed to care.
Let us help you explore whether an irrevocable trust is the right fit for you. You don’t have to choose between protecting your assets and getting the care you deserve. With the right plan, you can do both.
Fill out the form below to schedule your free discovery call today.