Irrevocable Trusts

Advanced Estate Planning for Asset Protection, Tax Efficiency, and Legacy Planning

An Irrevocable Trust can be a powerful estate planning tool when used appropriately. Unlike revocable trusts, irrevocable trusts offer probate avoidance, asset protection, and the potential to reduce the size of an estate. Because assets transferred into an irrevocable trust are no longer owned by the individual, these trusts can serve multiple long-term planning objectives—but they also require careful consideration and expert guidance.

At Greenbush Financial Group, we help clients understand whether an irrevocable trust fits into their overall financial plan, and if so, how it should be structured to meet their goals while minimizing unintended consequences.

Understanding the Two Types of Irrevocable Trusts

There are two distinct types of irrevocable trusts, and the differences between them are significant—especially from a tax perspective.

Grantor Irrevocable Trusts

In a grantor irrevocable trust:

• The grantor is still responsible for paying income taxes on trust earnings

• Assets may be removed from the estate for estate tax purposes

• The trust assets receive a step-up in cost basis when they pass to the trust beneficiaries

• Often used for long-term care / Medicaid asset protection planning

Non-Grantor Irrevocable Trusts

In a non-grantor irrevocable trust:

• The trust itself is a separate tax-paying entity

• Income may be taxed at trust tax rates unless distributed

• Beneficiaries may pay taxes on distributed income

• No step-up in cost basis when trust assets are distributed to beneficiaries

• Commonly used to reduce the size of an estate to reduce the estate tax liability

Choosing the wrong structure can create unintended tax consequences for the individual, the estate, or the beneficiaries—making professional planning essential.

Asset Protection from a Long-Term Care Event

One of the most common reasons individuals establish an irrevocable trust is to protect assets from a long-term care spend-down, often referred to as a Medicaid trust.

By transferring assets into an irrevocable trust and successfully satisfying New York State’s five-year Medicaid look-back period, individuals may:

• Avoid spending down all assets

• Qualify for Medicaid coverage of long-term care costs

• Preserve assets for heirs

Important Considerations

• Planning must be done well in advance of a care event

• The grantor typically loses access to principal

• The grantor may retain access to income generated by trust assets

• Once assets are transferred, control is significantly limited

This strategy requires careful planning and a clear understanding of trade-offs.

Reducing the Size of a Taxable Estate

Irrevocable trusts are also commonly used to reduce estate tax exposure for individuals with larger estates.

By gifting assets into an irrevocable trust:

• Assets are removed from the taxable estate

• Future appreciation occurs outside the estate

• Potential estate tax liability may be reduced

At the federal level, estate tax exemptions are currently high—approximately $15 million per individual as of 2026. However, state-level estate tax exemptions vary significantly, and some states impose estate taxes at much lower thresholds.

For families with substantial wealth, irrevocable trusts can be an important estate tax planning tool.

Creditor Protection

Another key benefit of irrevocable trusts is creditor protection.

Once assets are transferred into an irrevocable trust:

• The grantor no longer legally owns the assets

• Assets may be protected from personal creditors

• Protection depends on proper drafting and state law

This can be especially important for individuals in professions with higher liability exposure or those seeking to shield assets from future legal claims.

The Importance of Proper Trust Design

Irrevocable trusts require expert legal drafting.

There are specific provisions that can be included to:

• Provide limited flexibility to the grantor

• Allow trustee discretion

• Protect beneficiaries

• Preserve tax advantages

Without the right language, the trust may:

• Be overly restrictive

• Create unintended tax consequences

• Limit future planning options

Additionally, key decisions must be made regarding:

• Trustee selection (who manages the trust)

• Beneficiaries (who benefits from the trust)

• Trustee powers and gifting provisions

• Distribution rules

Because irrevocable trusts involve permanently giving up control, these decisions should never be made casually.

Our Role in Irrevocable Trust Planning

At our firm, we

• Help clients evaluate whether an irrevocable trust is appropriate

• Model tax and estate implications

• Coordinate long-term care, estate, and tax planning

• Work closely with experienced estate attorneys

• Ensure trust strategies align with broader financial goals

Irrevocable trusts can be extremely effective—but only when integrated thoughtfully into a comprehensive plan.

Contact Us . . . .

All of our services start with a complimentary consult. No high pressure sales tactics. We are financial planners, not salesmen.

About Our Firm:  Greenbush Financial Group is an independent registered investment advisory firm based in Albany, New York, that provides four main services to clients: fee-based financial planning services, investment management, employer-sponsored retirement plans, and retirement planning services.  The firm serves clients locally in the Albany region and virtually across the United States.

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