Aims a Living Trust Will and Won’t Accomplish

A revocable living trust is a versatile estate planning tool that can be the right choice for a wide range of people. That being said, there are different types of trusts. Though a revocable living trust can satisfy multiple aims, there are other options that can be preferable under certain circumstances. We will look at the matter of trust selection in this post.

Revocability and Incidents of Ownership

There are people who never even consider the possibility of using a trust because they are under the impression that you give up access to funds that you convey into any type of trust. They look at it as a permanent act that can never be changed or altered in any way.

With a revocable living trust, this is definitely not the case. Right off the bat, you can see by the name that you have the power of revocation. You can dissolve or rescind the trust at any time and take back direct personal possession of property that you have conveyed into it.

If you were to establish a living trust, you could be the trustee and the beneficiary while you are still alive. As such, you would make all administrative decisions, and you could receive monetary distributions from the trust.

You never have to worry about a loss of control of the assets, and that is positive on the one hand. On the other hand, since you retain incidents of ownership, resources in a revocable living trust are still looked upon as your property for purposes of creditors and nursing home expenses. This is why a living trust is not always the optimal choice.

Living Trust Benefits

We will look at the reasons why people use other alternatives in the next section. On the positive side of the ledger, you can include spendthrift protections for the beneficiary when you have a living trust.

After you pass away, the trust would become irrevocable. If you include a spendthrift clause, you could instruct the trustee to distribute limited assets to the beneficiary over an extended period of time. The principal would be out of the reach of the beneficiary’s creditors.

About 40% of people that are 85 years of age and older are Alzheimer’s sufferers, and this is not the only cause of incapacity among elders. To account for this eventuality, you could name a disability trustee in your living trust declaration to empower someone to administer the trust in the event of your incapacity.

A living trust provides for a streamlined estate administration process. All of the assets are consolidated under one umbrella of ownership, and this will benefit the trustee that administers the trust after you are gone.

Tax Efficiency and Medicaid Planning

In some instances, it is important for people to get assets out of their own names when they are engaged in their estate planning efforts. High net worth individuals have to be concerned about the federal estate tax and its potentially devastating 40% maximum rate. It is applicable on asset transfers that exceed $11.4 million in 2019.

People that are exposed to the tax have to take steps to facilitate asset transfers at a discount while they reduce their tax exposure. This is often done through the use of certain types of trusts, but they are irrevocable trusts. These devices include grantor retained annuity trusts, generation-skipping trusts, and qualified personal residence trusts, just to name a handful.

According to the United States Department of Health and Human Services, 35% of senior citizens will spend some time in nursing homes eventually. The average length of stay is 12 months, and in North Carolina and Kentucky, you can expect to pay over $70,000 for a year in a private room in a nursing home.

Medicare will not pay for the custodial care that nursing homes provide so this is a major problem. You also have to consider the fact that your family could be confronted by two different rounds of nursing home costs if you are married.

That’s the bad news, but the good news is that Medicaid will pay for a stay in a nursing home. Since it is a need-based program, you cannot qualify if you have significant assets in your own name. As a response, you could convey resources into an irrevocable Medicaid trust. After the lookback period, assets in the trust would not be counted by Medicaid when they are tallying the value of your property.

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If you would like to discuss your unique situation with a licensed estate planning attorney, our doors are open. You can send us a message to request a consultation appointment, and we can be reached by phone at 606-324-5516 in Ashland, Kentucky, 859-372-6655 in Florence, Kentucky, or 704-944-3245 in North Carolina (Charlotte, NC and Huntersville, NC).