If you are under the impression that you should use a last will to state your final wishes when you are planning your estate, you may feel as though you have no need for a trust lawyer. In fact, there are many different circumstances that would call for using a trust instead of a will. Let’s look at the some of those situations.
Special Needs Planning
Let’s say that you have an adult granddaughter with special needs in your family. She is relying on Medicaid is a source of health insurance. This is a need-based program so it is only available to people who have very limited financial resources.
You are going to be leaving your granddaughter an inheritance. If you maintain direct personal possession of your property, and you leave people inheritances through the terms of a will, they would receive lump sums all at once after you pass away.
Since your granddaughter would be receiving a direct inheritance, her financial status would prove significantly. As a result, she could lose eligibility for Medicaid coverage.
If you were to go to a trust lawyer, you would find out that you could utilize a supplemental needs trust to help out your granddaughter without impacting Medicaid eligibility.
Estate Tax Savings
High net worth families have to be concerned about the possible imposition of the federal estate tax. Transfers between spouses who are American citizens can be made tax-free, but the estate tax can be levied on transfers to others that exceed a certain amount.
This threshold is called the exclusion. For the remainder of 2016, the exclusion is $5.45 million. Each year there can be inflation adjustments so the figure may look a bit bigger in 2017.
If you maintain personal possession of your assets up until the time of your death and you state your wishes with regard to asset transfers in a will, the estate tax could be applied on the portion of your estate that exceeds the amount of the exclusion.
However, there are estate tax savings strategies that can be implemented. A trust lawyer could make the appropriate recommendations. There are various types of irrevocable trusts that are used by people who want to position their assets in a tax efficient manner.
Spendthrift Protections
We mentioned previously that inheritors would receive lump sum inheritances if you were to use a last will as your asset transfer vehicle. As a result, the people who inherit property from you could squander their inheritances if they are not good money managers.
If you use a living trust as the centerpiece of your estate plan instead of a last will, you can act as the trustee while you are living so you do not lose control of the assets while you are alive. Plus, this type of trust is revocable so you have the ability to dissolve the trust entirely if you ever choose to do so.
You create a trust agreement, and in this agreement you name a successor trustee to administer the trust after you are gone. You also name your heirs as the successor beneficiaries. In this agreement, you can include spendthrift protections, and the trustee would be empowered to handle the assets in the trust. The trustee can be responsible for investments, and many people use a professional, corporate trustee.
As an example of what you may want to do to protect spendthrifts, you could instruct the trustee to distribute only the earnings from the trust, spread out over 12 monthly payments to the beneficiaries. In this manner, the principal would remain intact so it could act as an income producing foundation for the long haul.
There would also be a certain level of protection from the beneficiary’s creditors due to the spendthrift provision.
Incapacity Planning
A living trust can provide an additional benefit beyond spendthrift protections. Many elders become unable to handle their own financial affairs at some point in time. Alzheimer’s is a very big part of this equation. If you have a living trust, you could empower the successor trustee to administer the trust if you ever become incapacitated.
Schedule a Consultation
We have looked at a few of the reasons why you may want to speak with a trust lawyer in this blog post, but there are a number of others. If you would like to learn more, our firm would be glad to discuss them with you.
To set up a no obligation consultation, send us a message through our contact page or give us a call at (704) 944-3245.
Latest posts by John Potter (see all)
- Medicaid Planning Facts and Figures - August 16, 2019
- Estate Administration: Legal Guidance Is Invaluable - August 14, 2019
- Steps to Take Along the Estate Planning Process - August 2, 2019
