For too many people think that a simple will is the only estate planning document that you can use unless you are very wealthy. They assume the trusts are complicated and very expensive to create and administer, so they resolve to use wills and hope for the best.
In reality, this assumption is completely false. You can use a trust of some kind to solve various different estate planning challenges that can present themselves, and we will provide an overview here.
If you use a will as your exclusive asset transfer vehicle, the inheritors would receive lump sums all at once.
This may be a source of concern if you have someone on your inheritance list that is not good with money. There could alternately be a family member that simply does not have much experience in the money management department.
To account for this, you can use a revocable living trust as the centerpiece of your estate plan. As the name would indicate, you can revoke the trust if you ever choose to do so. You would be the trustee, so you would have complete control of the assets.
A spendthrift clause can be included in the trust declaration to protect the beneficiary. The trust would become irrevocable after your death, and the successor trustee that you name in the document would serve as the administrator.
Creditors of the beneficiary would not be able to touch the principal, and you could instruct the trustee to distribute limited assets over an extended period of time. This is one example of a structure that some people use, but you would have complete control over the nature of the distributions.
Simple Efficiency for Married Couples
If two married people use their own separate wills, they may have a hard time figuring out how to proceed because there are so many uncertainties. A shared living trust can be a far better solution when there is a good bit of jointly owned property and both the participants are on the same page.
A common arrangement would be for the couple to act as co-trustees while they are both alive. When one partner dies, the survivor would become the sole controller of the property that had been jointly owned. The separate property of the deceased partner could be distributed in accordance with their wishes.
Nursing Home Asset Protection
There is a very unpleasant reality that elder law attorneys help clients address on a day-to-day basis. The last majority of senior citizens will need some type of living assistance, and 35 percent of elders will eventually reside in nursing homes per se.
You can expect to pay over $100,000 for a year in a private room in a nursing home, and costs have been rising over recent years. Medicare does not cover the custodial care that nursing homes provide, so this is a situation that must be addressed.
Medicaid is the widely embraced solution because it will pay for long-term care. Since it is a need-based program, you cannot qualify if you have more than $2000 in countable assets in your own name.
You could fund an irrevocable Medicaid trust to develop a financial profile that will lead to future stability. Though you would not have access to the principal, you could continue to receive distributions of income that is generated by the assets in the trust.
Advance planning is the key to the successful execution of this strategy, because there is a five year look back period. The trust must be funded at least 60 months before you apply for Medicaid, and if you violate this rule, your eligibility would be delayed.
The duration of the period of ineligibility would be based on the amount that you conveyed into the trust. If it was enough to pay for one year of nursing home care, your eligibility would be delayed by a year.
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These are just some of the situations that would call for the use of a trust of some kind, but there are others. The ideal way to proceed will depend upon the circumstances, and this is why you should discuss your options with a licensed estate planning attorney.
If you are ready to do just that, you can send us a message to request a consultation appointment, we can be reached by phone at 513-721-1513.