Choose the Right Inheritance Planning Tools

A lot of people think that legal advice is not necessary when it comes to estate planning because it is a very simple endeavor. You take a few minutes to draw up a will when you are old and gray, and that’s the long and short of it. People that adopt this perspective assume that trusts are only for the wealthy.

In reality, this is a gross oversimplification. It is true that there are certain types of trusts that are used by affluent individuals who are exposed to estate taxes. However, there are different types of trusts that can be optimal for people of relatively ordinary means.

This a broad subject, but in this post, we will focus on three inheritance planning situations that can call for the use of a trust.

Government Benefit Preservation

Most people with disabilities rely on Medicaid as a source of health insurance. This is a need-based program that is only available to individuals with very limited monetary resources.

Supplemental Security Income (SSI) is another government program that is earmarked for people with disabilities that cannot work. It provides a modest but steady stream of income.

Eligibility for these programs is not necessarily permanent. A change in financial status can cause a loss of eligibility. This is something to take into consideration if you have a loved one with special needs on your inheritance list.

The ideal tool to use under these circumstances is a supplemental needs trust. Simply put, a trustee that you name would be empowered to use assets in the trust to make the beneficiary more comfortable. As long as the trustee follows the rules correctly, benefit eligibility would not be negatively impacted.

Spendthrift Protections

When you are engaged in your inheritance planning efforts, you may have some concerns about someone on the list who is not good at managing money. As a response, you can make this person the beneficiary of a revocable living trust with a spendthrift provision after your death.

You could act as the trustee while you are living, and you would name a successor trustee to administer the trust after you are gone. The trustee would follow your instructions regarding the nature of the distributions to the beneficiary.

To provide an example, to prolong the viability of the trust, you could allow the trustee to provide limited monthly distributions over an extended period of time. Because of the spendthrift clause, the beneficiary’s creditors would not be able to touch the principal, and this is another important protection.

Medicaid Trust

About 35 percent of elders will eventually spend time in nursing homes, and these facilities are extremely expensive. Medicare does not pay for this type of care so the costs could consume a significant portion of your legacy. This is especially true if you are married because your family could face two different rounds of nursing home expenses.

Medicaid will pay for long-term care; but as we have touched upon, you cannot qualify if you have significant assets in your own name. In an effort to qualify for this program in the future, you could convey assets into an irrevocable Medicaid trust.

You would not be able to touch the principal, but you would be able to receive income that is generated by assets that have been conveyed into the trust.

Attend a Free Seminar!

We have just scratched the surface here to make a point about the different tools that are in the inheritance planning toolkit. In subsequent blog posts, we will take a closer look at all three of these different types of trusts to give you a more thorough understanding.

Education is the key to a well-constructed estate plan, and with this in mind, we conduct seminars on an ongoing basis. Our attorneys go over many different important topics, and they present the material in a easy to understand, down to earth manner.

There are a number of sessions coming up in the near future, and we urge you to join us to build on your knowledge. Though there is no charge, we ask that you register in advance so that we can reserve your seat. To get all the details, visit our seminar schedule page.