There are some major misconceptions that circulate about estate planning, and they often yield negative results. One of the most common misguided notions that people harbor is the idea that you do not need a trust unless you are very wealthy.
This is simply not the case. In this post, we will look at three different types of trusts that can be ideal for many people that are not among the financial elite.
Revocable Living Trusts
In addition to the idea that trusts are only for the wealthy, there is another myth about losing control of assets that you convey into a trust of any kind. If you use a revocable living trust, you maintain complete and total control every step of the way.
As the name would indicate, you can actually revoke the trust entirely if you ever choose to do so. As the grantor of a living trust, you would initially serve as the trustee and the beneficiary, so you would be the sole decision-maker.
One major benefit to be gained through the creation of a living trust is the avoidance of probate.
When a will is used, the executor that is named in the document would admit the will to probate. The court would provide supervision, and this process comes with some drawbacks that impact the rightful heirs.
One of them is the time consumption. It will take eight or nine months to a year for probate to run its course in most cases, and no inheritances are distributed during this interim.
There is a loss of privacy, because probate records can be accessed by anyone that has an interest. Thirdly, there are considerable costs that accumulate during probate.
If you use a living trust instead, the successor trustee would be able to distribute assets to the successor beneficiary or beneficiaries outside of probate. As a result, all of these negatives would be avoided.
Probate avoidance is one benefit, and there are a number of others. We will cover them in another blog post.
Most senior citizens will eventually need long-term care, and Medicare will not pay for a stay in a nursing home or assisted living community. These facilities are very expensive, so paying out-of-pocket could be financially devastating.
Medicaid is another government program that does pay for living assistance. However, it is intended for people that have a significant level of financial need.
There is a low asset limit of just $2000, but some things that you may own do not count, including your home. When it comes to countable assets, you could convey them into an irrevocable Medicaid trust. They would not count if and when Medicaid calculates your net worth to determine your eligibility status, and you would not be able to touch the principal. However, you would be able to receive income that is earned by assets in the trust until and unless you qualify for Medicaid.
Supplemental Needs Trusts
People with disabilities typically rely on Medicaid as a source of health insurance, and Supplemental Security Income provides some cash each month. Since these are programs are need-based programs, an improvement in financial status can cause a loss of eligibility.
This can present an obstacle if you have someone on your inheritance list that is relying on these programs. As a response, you could convey assets into a supplemental needs trust.
Under program rules, the trustee would be able to use assets in the trust to make the beneficiary more comfortable in many different ways. As long as the rules are followed correctly, benefit eligibility would not be impacted.
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