A lot of people think that estate planning boils down to the creation of a simple will. They never really consider the alternatives, and they assume that everything will fall into place.
In reality, when certain circumstances exist, a will would not be the right choice.
Spendthrift Protection Planning
Unless the will includes a testamentary trust, which is a trust that is embedded within a will, the inheritors would receive lump sum inheritances. There would be no spending safeguards going forward, and the assets would not be protected from creditors.
This may not raise any red flags if you are leaving a bequest to a mature individual with strong money management capabilities, but everyone does not fit this description. Reckless spending can definitely be a source of concern if you have a spendthrift on your inheritance list.
As a response, you can make this person the beneficiary of a revocable living trust with a spendthrift clause. You would not surrender control of the assets while you are living, because you would act as the trustee.
You would name a trustee to succeed you after your passing when you are drawing up the trust, and this designated trustee could also assume the role in the event of your incapacity.
When the time comes, the trust would become irrevocable, and the beneficiary would not be able to access the principal. The beneficiary’s creditors would be in the same position, so there would be a layer of asset protection.
With regard to the distributions, you would be able to dictate the terms when you establish the trust. You can leave the trust intact for an extended period of time to give the trustee the ability to provide limited distributions until the beneficiary reaches a certain age.
Nursing Home Asset Protection
Most senior citizens will need long-term care eventually, and more than a third will ultimately reside in nursing facilities. You can expect to pay $100,000 or more for a year in a Cincinnati area nursing home, and the costs can be doubled for married couples.
Medicare does not pay for the custodial care that nursing homes provide. The widely embraced solution is Medicaid, because this jointly administered federal/state government health insurance program will cover long-term care.
Medicaid is a need-based program, so you cannot qualify if you have assets in your name. If you maintain direct possession of your resources with the idea that you will use a will to direct future transfers, you would not be eligible for Medicaid.
On the other hand, you can gain eligibility if you convey resources into an irrevocable, income only Medicaid trust. The principal would be out of your reach, but you could receive distributions of the trust’s income until you apply for Medicaid.
Special Needs Planning
A significant percentage of people with disabilities get their health care insurance through Medicaid, and they get a modest financial boost form the Supplemental Security Income (SSI) program.
If you were to leave someone that is in this position a direct inheritance through the terms of a will, benefit eligibility could be lost. With this in mind, you could establish and fund a supplemental needs trust for the benefit of a person with a disability.
The beneficiary would not be able to act as the trustee, and they would have no direct access to the resources. However, the trustee that you designate would be able to use the assets in the trust to make the beneficiary more comfortable in many ways.
Ongoing benefit eligibility would not be impacted, and the assets that remain in the trust would go to a successor beneficiary after the death of the initial beneficiary.
We Are Here to Help!
As you can see, there are different approaches that can be taken when you are planning your estate. The ideal course of action will depend on the situation, and this is why you should work with a Cincinnati estate planning attorney to develop a custom crafted plan.
If you are ready to do just that, you can schedule a consultation appointment if you call us at 513-721-1513. There is also a contact form on this site you can use to send us a message, and if you reach out electronically, you will receive a prompt response.