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How Can I Receive Living Expenses as Grantor From an Irrevocable Trust?


Trusts are an independent legal entity, similar to a corporation. As a result any assets you contribute belong entirely to the trust itself, the same as if you gave your money to any other third party. If the trust is an irrevocable trust, there is no legitimate way for you to take this money back. You cannot claw back money placed in an irrevocable trust. However, if you need a trust to generate living expenses, you can address this issue by planning ahead.

Trusts are powerful but complicated tools. Speak with a fiduciary financial advisor to get more insights for your personal needs.

Depending on the circumstances, you might name yourself as a beneficiary to the trust, with distributions to cover your living expenses. Alternatively, another form of trust may be a better option for you. Here are some things to consider.

What Is an Irrevocable Trust?

A trust is a legal entity that holds and manages assets. Ordinarily, a trust fully owns all assets that it holds. 

Every trust has four essential elements:

  • Grantor – The person(s) who creates the trust and contributes assets to it
  • Beneficiary – The person(s) who receive assets from the trust
  • Terms – The instructions for how the trust manages and distributes assets
  • Trustee – The person(s) who manage and distribute the trust’s assets

For example, Susan (the Grantor) might set up a trust and place $100,000 in it. The trust will distribute $10,000 per year (the Terms) to Susan’s nephew Alex (the Beneficiary). The trust’s principal will be invested and distributed by Susan’s law firm (the Trustee).

There are many different kinds of trust. With an irrevocable trust, the grantor cannot change the terms or beneficiaries once the trust has been established. While the grantor is free to contribute additional assets to an irrevocable trust, they cannot withdraw or otherwise access any assets once contributed. 

In other words, an irrevocable trust has sole control over any assets you contribute. You cannot reclaim this money any more than you could unilaterally take it out of a friend’s bank account.

Speak with a financial advisor about how to best go about setting up a trust.

Benefits of an Irrevocable Trust

The main reason to create an irrevocable trust (as opposed to other, more flexible, options) is so that you no longer own these assets. The downside to this is that you cannot freely use or spend these assets on your own behalf, although that will depend in part on the terms of the trust. However, while relatively uncommon, there are situations where you might want to reduce your household’s wealth. A few of the most common examples include:

Medicaid Access

All state Medicaid programs have some form of poverty requirement. Your household’s assets and income must be below the program’s threshold in order to enroll. Many households that need Medicaid coverage, particularly its long-term and residential care programs, are too wealthy to qualify. An irrevocable trust can allow you to reduce your household assets, while also controlling who receives them. You’ll want to plan ahead with this strategy, however, as Medicaid has a five-year lookback period on assets.

Estate Planning

In most cases, a revocable trust will work equally well for estate planning. However, like most trusts, an irrevocable trust allows you to move asset out of your estate and into the trust’s ownership. The trust then distributes assets to your beneficiaries, eliminating the slow process of probate as well as any potential (although rare) estate tax issues. A financial advisor can help you navigate the nuances involved in proper estate planning.

Debt Collection

Finally, in extreme cases, an irrevocable trust can sometimes shield your assets from creditors. Once you transfer assets into a trust, they are owned by this legal third party. Creditors cannot reach into the trust and collect those assets simply because of the association with you. You lose the assets, but you get to choose who gets them. 

Although be very careful about this approach. Courts look disfavorably on parties that try to evade debt collection. When you transfer assets for the purpose of frustrating your creditors, including into a trust, courts can and sometimes will unwind the transfer.

Irrevocable Trusts Are Complicated for the Purpose of Your Own Living Expenses

All of this brings us to our central question: How can you receive living expenses from a trust that you, yourself, have set up?

As a threshold matter, you cannot simply withdraw this money from the trust. It no longer belongs to you. Once assets have been placed in an irrevocable trust, they are out of your (or anybody’s) reach until the trust makes its distributions. Instead, you need to plan for this when you establish the trust. 

One option is to name yourself as a beneficiary. This is an unusual step, to be sure. Typically when someone forms an irrevocable trust, they do so because they want these assets shielded from themselves, their liabilities or their estate. In general, though, it isn’t illegal. When you form an irrevocable trust you can name yourself as a beneficiary, setting the distributions based on your living expenses. This will allow you to receive that necessary income while shielding the rest of your assets, but may negate some of the intrinsic benefits of the irrevocable trust. You’ll want to speak to a financial advisor and an estate planning attorney about the implications.

Other Types of Trusts Might Be a Better Fit

There are a plethora of trusts available, including some that make it easier for you to receive living expenses. All trusts have their advantages and disadvantages, and should be carefully considered against your needs and circumstances. Some examples include:

  • Revocable Trusts: A revocable trust is a type of living trust that can be changed or terminated by the grantor during their lifetime. In a revocable trust, the grantor retains control over the trust assets and can receive income from the trust. However, this also means that the assets in a revocable trust are still considered part of the grantor’s estate for tax purposes.
  • Intentionally Defective Grantor Trusts (IDGTs): An intentionally defective grantor trust is a type of irrevocable trust designed to allow the grantor to retain certain powers over the trust, such as the ability to receive income from the trust, while also allowing the trust assets to be excluded from the grantor’s estate for tax purposes. This type of trust can be beneficial for estate planning purposes, as it allows the grantor to transfer assets to the trust while still retaining some control over those assets.

If you’re considering a trust, run the idea by a financial advisor who can help you understand the tax and legal implications.

The Bottom Line

You cannot withdraw assets from an irrevocable trust. However, you can make plans to receive living expenses and other necessary money when you set up your trust, or you can consider another type of trust depending on what you’re ultimately trying to achieve. In all cases, setting up an irrevocable trust is legally and financially complicated. You should not attempt to do this on your own. Make sure to speak with a professional when setting up a trust. 

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