There are many different tools in the estate planning toolkit. This is why it is important to discuss your own personal situation with a licensed attorney from our firm. We can gain an understanding of your objectives and family dynamic and make the appropriate recommendations.
With this in mind, there are some relatively common scenarios that sometimes present themselves. In this post, we will look at three of them in an effort to provide some useful insight.
Special Needs Planning
There are two sides to the estate planning equation. As a person devising a plan, you have to inventory your assets and decide how you want to divide them. On the other side, you should consider the life situation of the people that are on your inheritance list.
The right way to get assets into the hands of one person may not be appropriate for the next. This is very well demonstrated by the scenario that exists when you want to provide for a loved one with special needs.
A very significant percentage of people with disabilities depend on Medicaid as a source of health insurance, and Supplemental Security Income (SSI) is often relied upon as well. These are need-based government programs, so benefit recipients can lose eligibility if they come into money.
To account for this, you could convey assets into a supplemental needs trust. The way that it works is you name a trustee to act as the administrator, and a loved one that you want to help would be the beneficiary.
It should be noted that the beneficiary would have no direct access to the funds. This would be an irrevocable trust, so it could not be altered or dissolved after it has been established.
According to the program rules, the trustee would be allowed to use assets in the trust to satisfy the supplemental needs of the beneficiary. Broadly speaking, these would be needs that are not being met by the benefits in and of themselves.
As long as everything is done correctly, eligibility for the benefits would not be negatively impacted. It should be noted that it is possible for a representative of someone with special needs to establish this type of trust with assets that are the property of the person that will be the beneficiary.
This is called a self-settled or first person special needs trust. Under these circumstances, Medicaid would be able to attach assets that remain in the trust after the death of the beneficiary.
A trust that you establish with your own funds for the benefit of someone with a disability would be a third-party supplemental needs trust. When this type of trust is in place, Medicaid would not be able to touch the remainder after the beneficiary’s passing. It would go to a successor beneficiary that you name in the trust declaration.
Protecting a Spendthrift Heir
If you have someone in your family that is not good at handling money, you may not feel comfortable leaving this person a direct lump sum inheritance with no strings attached. To account for this, you could establish a revocable living trust with a spendthrift clause.
In the trust document, you could leave instructions regarding the way that you want assets to be distributed to the beneficiary. For instance, you could allow for monthly distributions of earnings that are generated by the principal augmented by incremental lump sum distributions every five years.
Creditors of the beneficiary would not have access to the principal, so there would be a layer of protection on this level. They would however be able to go after assets that have been distributed to the beneficiary.
Estate Planning for Married Couples
A revocable living trust is a versatile legal device that can satisfy a number of different objectives beyond the spendthrift angle. With this in mind, if you are married, you and your spouse could establish a joint revocable living trust.
You could each act as co-beneficiaries and co-trustees while you are living. Jointly held assets could be conveyed into the trust, and it is also possible to sign separate property over to the trust.
There are a number of different ways that this type of trust can be structured, so you have options. This can be a great way to streamline the estate planning process if you and your spouse are on the same page.
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