Image depicting the concept of an irrevocable trust in business, symbolizing stability and asset protectionBasics Of Estate Planning In Virginia: Irrevocable Trusts

The term irrevocable in the title irrevocable trust encapsulates its essence — once established, it cannot be easily undone, if at all. The fundamental distinction between it and a revocable trust lies in the ability to make changes to the trust structure. In a revocable trust, as implied by its name, the settlor retains the flexibility to alter the trust, including the option to dissolve it entirely and reclaim all assets.

Conversely, in an irrevocable trust, once the assets are transferred into the trust, the settlor relinquishes control permanently. When using an irrevocable trust in an estate plan, the declaration is clear: I am giving this asset away and don’t want it back. The trust is now the custodian of these assets. This irrevocable commitment sets the stage for a more rigid structure with limited provisions for modifications.

Advantages And Disadvantages

The distinctive advantage of an irrevocable trust lies in the security it provides the assets within it. External entities are bound by the rules established within the trust and face significant hurdles in attempting to alter its terms. However, recent changes in Virginia law introduce a new reality, particularly concerning tax consequences for eventual heirs. In the context of a revocable trust, if a house, for instance, is placed in the trust and passed onto heirs after the settlor passes away, the children receive the property on a “stepped-up basis” for tax purposes.

To elaborate, consider a house initially purchased for $100,000 with a current market value of $600,000. Under the stepped-up basis, the children’s taxable value would be the current market value of $600,000. This minimizes their capital gains tax liability, as they would only be taxed on the increase in value relative to that cost basis of $600,000. With the recent changes to the law, the stepped-up basis is no longer applicable, meaning heirs would be liable for capital gains tax based on the original purchase price of $100,000.

This substantial shift in tax consequences over the last decade is likely an effort to counteract a longstanding practice where individuals placed assets in trusts to avoid paying taxes. By curtailing the stepped-up basis in irrevocable trusts, the government aims to ensure that capital gains taxes are calculated on the full appreciation of the asset, even if held within a protective trust structure. This underscores the dynamic interplay between estate planning strategies and evolving government regulations.

Applications To Healthcare Needs

One prevalent and crucial application of an irrevocable trust revolves around addressing health-related concerns, particularly when individuals anticipate the need for government benefits such as Medicaid due to a serious illness.

In circumstances where an individual possesses substantial assets and financial resources, qualifying for Medicaid may be challenging since Medicaid eligibility criteria often require you to exhaust your assets before government assistance kicks in. To circumvent this challenge, many individuals turn to irrevocable trusts.

The primary purpose of employing an irrevocable trust, in this context, is to strategically remove assets from the individual’s name. By doing so, the assets become part of the trust, ensuring that heirs can inherit them without the need for the individual to deplete their assets to meet Medicaid eligibility criteria.

Protecting And Providing For Minor Children

When it comes to protecting and providing for minor children in Virginia, establishing a trust is a key component. While a comprehensive irrevocable trust offers robust benefits, there are alternative approaches, such as incorporating an inter vivos trust within a will — commonly known as a testamentary trust.

This testamentary trust, generally created upon the untimely demise of the parents, serves as a mechanism to ensure the well-being of underage children. While not as efficient as a revocable trust, it allows parents to designate a guardian and conservator for their children, offering a measure of control over the assets.

Opting for an irrevocable trust introduces additional advantages, including the potential tax savings discussed earlier in relation to the stepped-up basis. This option, while more comprehensive, requires careful consideration, as it comes with a higher financial investment compared to a testamentary trust or a simple will.

The choice between a revocable trust, an irrevocable trust, or a testamentary trust depends on your specific circumstances and financial health. While a revocable trust provides greater control, it may exceed the financial requirements for some. In such cases, a testamentary trust within a will might offer a cost-effective solution, meeting essential needs without the additional expense of a full trust document.

For more information on Using An Irrevocable Trust In An Estate Plan, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (703) 775-1678 today.


Attorney Mark Madigan is a careful and compassionate North Virginia attorney in Springfield who has decades of experience helping individuals and families craft wills, trusts, and estate plans. Always on the lookout for ways to demystify these essential legal tools, his work helps ordinary Virginians protect their legacies, assets, and families.

Connect with his law firm, Madigan and Scott Inc. to stay up to date on Virginia estate planning laws, risks, and practices so that you do not have to face this difficult time, nor these challenging decisions, alone and uninformed.

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