There is a widely held misconception about the waythat trusts are used in the field of estate planning. You may assume that alast will is the core asset transfer vehicle that is appropriate for just abouteveryone. The idea is that trusts are only useful for very wealthy people withcomplicated portfolios.
In actuality, there are many different types of trust,and they satisfy varying aims. Yes, some of them are used by people with a greatdeal of money that are exposed to the federal estate tax. However, other trustsare actually more widely utilized, and you should understand the facts beforeyou make any assumptions.
Revocable Living Trusts
A revocable living trust is a legal device that is theideal choice for a broad range of people. First, it is important to take noteof the “revocable” designation. You can revoke or dissolve a living trust at anytime, for any reason. As the grantor of this type of trust, you can act as thetrustee and the beneficiary while you are living, so you maintain total controlon every level.
In the trust declaration, you would name a successortrustee and successor beneficiaries. After you are gone, the trustee wouldfollow your instructions and distribute assets to the beneficiaries inaccordance with your wishes.
The probate court would not be involved, and this is amajor advantage over a last will. Probate is a costly and time-consuming legalprocess. In addition to the benefit of probate avoidance, you can includespendthrift protections, and the estate administration tasks are streamlinedwhen you use a living trust.
Medicaid Trusts
When you are planning ahead for your elder years withyour legacy in mind, you should consider the potential impact of long-term carecosts. The majority of senior citizens will need living assistance eventually,and over 30 percent of them will require nursing home care.
These facilities are exorbitantly expensive, andMedicare will not pick up the tab. Medicaid does pay for living assistance, butit is a need-based program, so you cannot qualify if you have significantassets in your own name.
To account for this, you could convey resources intoan irrevocable Medicaid trust. As the name would indicate, you would not beable to revoke the trust, and you would have no access to the principal. That’sthe bad news, but the good news is that you would be able to receive incomethat is generated by assets in the trust until and unless you apply forMedicaid.
Supplemental Needs Trusts
If you have a loved one with special needs on your inheritancelist, you have to take pause and consider the potential impact on governmentbenefit eligibility. Many people with special needs rely on Medicaid for healthinsurance, and Supplemental Security Income (SSI) is a source of ongoingincome.
Since these programs are only available to individualswith financial need, a sudden infusion of financial resources can trigger aloss of eligibility. As a response, you could convey assets into a supplementalneeds trust. The person that you want to provide for would be the beneficiary,and you would name a trustee to administer the trust.
Medicaid and SSI will provide the basics, but thereare other needs and desires that these programs will not cover. The trustee ofa supplemental needs trust can use assets in the trust to satisfy these needswithout impacting ongoing government benefit eligibility.
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