If you have never looked into the subject closely, when you think about trusts, you may paint with a broad brush assuming that they all do more or less the same thing. In fact, all trusts are not created equal, and there are some big differences between the different types of trusts.
One major distinction between trusts is the right to revoke. The revocable living trust is a widely used estate planning tool. This type of trust can be useful for people who are not necessarily multimillionaires. When you look at the name, you can see that you can revoke this type of trust.
The fact that you can revoke a living trust can sound very comforting. You may want to put an estate plan in place for the benefit of your loved ones, but at the same time, you want to make sure that you have access to your assets for your own purposes throughout your life.
With a living trust, the right of revocation is not the only power that you have. As the grantor of the trust, you can also act as the trustee so you would have control of the trust as well.
Though a revocable trust can be quite useful on a number of levels, these trusts do not accomplish certain objectives that some people have. This is because you can revoke the trust so you are retaining incidents of ownership. This has some significant implications.
When you hear that a trust cannot be revoked, you may get nervous, but there are some very good reasons why this type of trust would be the right choice. For example, there are people who are exposed to the federal estate tax. This tax can be applied on transfers that exceed $5.45 million.
Assets that are contained within a revocable living trust would be part of your estate for tax purposes. There are irrevocable trusts that can be used to remove assets from your taxable estate, and you can still benefit from the assets in many cases.
There are also irrevocable trusts that can protect your assets from legal judgments and creditors. If you establish a revocable living trust, it would become irrevocable at the time of your death, and there would be asset protection for the beneficiaries. However, while you are living, there would be no asset protection for you because you would be retaining incidents of ownership.
Most people are not concerned about estate taxes because they don’t have more than $5.45 million in wealth, and many people are not too worried about legal judgments. However, even if estate tax savings and asset protection are not important to you, you should brace yourself for long-term care costs.
Seven out of every 10 senior citizens will eventually need some form of living assistance. A man who is 67 today has a life expectancy of 85 years, and for a 67-year-old woman, the life expectancy is 87 years. One fourth of people who are 85 years of age and older are residing in nursing homes, and the figure is one half among those who are at least 95 years of age.
The majority of senior citizens are going to qualify for Medicare when they reach the age of 65, but Medicare will not pay for a stay in a nursing home or assisted living community. Nationally, the average annual cost for a private room in a nursing home exceeds $90,000, and people often require multiple years of care.
You are probably aware of the fact that Medicaid is a government health insurance program for people with very limited financial resources. This program will pay for long-term care, and it pays for a significant percentage of the care that seniors are receiving.
Assets that are contained within a revocable living trust would be counted if you were to apply for Medicaid to pay for long-term care. On the other hand, you could convey assets into an irrevocable Medicaid trust, and they would not be counted at the end of the look-back period. Though you could not touch the principal, you would be able to receive distributions of the earnings before you apply for Medicaid to pay for your long-term care.
These are a handful of the scenarios that can be addressed through the creation of an irrevocable trust, but there are others.
Build On Your Knowledge
Knowledge is the key to a properly constructed estate plan. If you would like to obtain a great deal of useful information, attend one of our upcoming estate planning seminars. There is no charge to attend our seminars, and you can see the schedule if you click this link: Charlotte NC Estate Planning Seminars.