A Trust is a legal arrangement in which a separate legal entity is created (the Trust) and the person who makes the Trust transfers ownership of property to the Trust. There are many different types of Trusts, capable of helping you accomplish a wide range of goals. They are among the most powerful tools in the estate planning attorney’s toolbox. Before looking at several Trusts, and the benefits of each, it may be helpful to begin with a few definitions.
The person who is creating the Trust.
The person or financial institution that will manage the property in the trust according to how the Trust documents direct.
The property that you have allocated into the Trust.
The persons that you have designated to receive the assets in the Trust.
A properly designed, implemented and funded Revocable Trust can give you complete control over your assets while you are alive and after you have passed away. You do not need to transfer your assets to the trust all at once, but can do so as you acquire new assets and at the time of your choosing. The benefits of a Revocable Trust include:
- Avoiding probate. Not only is the probate process time-consuming and needlessly expensive, it also exposes your assets and estate to public scrutiny
- The Trust is revocable, that is, it can be changed over time to compensate for changes in your financial and family situation
- Helping to eliminate challenges to the Will and ensuring beneficiaries receive what you have intended for them
- The ability to separate assets, which is useful for married couples
- On-going financial management. As your wealth accumulates, so too will the assets in the Trust
When properly designed and implemented, Irrevocable Trusts can provide an extraordinary level of asset protection from the high cost of long-term care. Under current Medicaid laws, assets in a Revocable Trust are not fully protected because they are available to the Grantor, and Medicaid will determine that those assets must be used to pay for long-term care. This is not the case with an Irrevocable Trust, as long as it takes into account the latest laws governing Medicaid eligibility.
Other reasons to utilize an Irrevocable Trust include avoiding probate, minimizing taxes, and avoiding the risks of placing assets in the names of your children. These include:
- Loss of inheritances due to lawsuits, divorce, remarriage, or the inability of your children to manage a large sum of money on their own
- Gift tax liability
- Income tax consequences for your children
- Problems with getting financial aid to cover educational and other expenses for your grandchildren
Special Needs Trusts
A properly designed and administered Special Needs Trust can preserve eligibility for government assistance programs such as Medicaid and Supplemental Security Income, while at the same time creating a fund to improve the care and quality of life of a person with special needs. For example, a Special Needs Trust gives the beneficiary indirect access (at the discretion of the Trustee) to funds providing for:
- Differentials in housing costs between shared and private rooms in institutional settings
- Medical procedures or therapies not available through government assistance
- Supplemental nursing home care and private companion services
- Geriatric care services
- Travel expenses
- Entertainment expenses such as movies, concerts or electronic equipment
- Guardian fees
- Attorney fees
- Other expenses, services or products not provided by a government assistance program
Life Insurance Trusts
A Life Insurance Trust is a type of Irrevocable Trust. Its primary goal is to reduce or eliminate estate taxes. How? By transferring the insurance policy into an Irrevocable Life Insurance Trust, making the trust the owner of the policy. While you will no longer have control of the insurance policy itself, the Life Insurance Trust will allow you to choose who will have that control, how the premiums will be paid, who will benefit from the trust, and how payments will be made to beneficiaries of the trust. A Life Insurance Trust can be a valuable tool for people with substantial insurance policies and estates large enough to be subject to estate taxes.
Contact us for experienced legal counsel in creating and implementing the Trust (or Trusts) best suited for your unique situation and needs.