Some people do not consider the possibility of using a trust as an estate planning tool because they harbor misconceptions. There are those that think that a trust can never be dissolved or revoked, and another misunderstanding is the idea that trusts are only useful for the wealthy.
In this post, we will provide clarification so you can go forward with sound information.
These assumptions are based on facts, but they are incomplete. Indeed, there are trusts that cannot be revoked under most circumstances, and they are used by high net worth individuals.
You surrender incidents of ownership if you establish an irrevocable trust because you no longer control the assets, and you can’t act as the trustee. This is useful under some circumstances.
For example, the majority of senior citizens will need long-term care eventually, and it is very expensive. Medicare will not cover the custodial care that nursing homes and in-home caregivers provide.
Medicaid will pick up these costs if you can gain eligibility, but it is a program that is only available to people with limited resources. There is a $2000 asset ceiling in the state of Ohio and most other states.
If you want to qualify for Medicaid to pay for long-term care, you could convey resources into an irrevocable trust. You would not be able to act as the trustee, and you would have no access to the principal, but you could accept distributions of the trust’s earnings.
Since you are surrendering incidents of ownership, the principal would not count if and when you apply for Medicaid. However, there is a five-year look back period, so the funding must take place at least five years before you submit your application.
Irrevocable trusts are used by the wealthy because high net worth individuals are exposed to the federal estate tax. Assets that are held by an irrevocable trust are not part of an estate for tax purposes, and there are trusts that facilitate transfers at a tax discount.
There are other reasons why people use irrevocable trusts, and we will look at them in a future post.
Revocable Living Trust
The revocable living trust is in a different category altogether, and you can in fact revoke or dissolve this type of trust at any time. You would be the trustee while you are living, so you would maintain control of the assets every step of the way.
Because you would be retaining incidents of ownership, the assets would count if you apply for Medicaid, and they would be part of your estate for tax purposes.
What is the value of a living trust? There are many benefits, and it starts with the peace of mind that you obtain if you have minor children.
You have to designate an adult to manage assets on their behalf if the unthinkable takes place. When you have a living trust, you name a successor trustee to assume the role after your passing, so this base would be covered.
When a will is used to transfer assets, it is admitted to probate. This is a legal process that will typically take eight or nine months at minimum, and no inheritances are distributed during this interim. Anyone that is interested can access the records, so there is a loss of privacy.
On the other hand, if you facilitate asset transfers through the terms of a living trust, the probate court would not be involved. You can also instruct the trustee to distribute limited assets over time as a spending safeguard, and the principal would be protected from creditors after your death.
Attend a Free Webinar
We are conducting webinars on an ongoing basis, and these sessions convey some very important information in a down to earth, understandable manner. There is no charge to attend the webinars, so this is a time investment that will yield dividends.
Plus, there is an added bonus. If you attend the webinar and stay with us throughout the presentation, you will be awarded with a 90 minute free virtual consultation.
You can see the dates if you head over to our estate planning webinar page. If you decide to join us, follow the instructions to register so we can reserve your spot.
Ready to Get Started?
Our doors are open if you are ready to work with a Cincinnati estate planning lawyer to put a plan in place. You can send us a message to set up a consultation appointment, and we can be reached by phone at 513-721-1513.