A lot of people are under the impression that a simple will is the right estate planning document for just about everyone. They think that trusts are very complicated legal devices that are only used by multimillionaires that have to pay estate taxes.
This is simply not true. Yes, there are trusts that are utilized by high net worth individuals, but there are reasons why “ordinary people” should use trusts, and we will look at a few of them here.
Providing for People With Disabilities
If you have someone with a disability on your inheritance list, it is likely that they are relying on government benefits. Medicaid is a source of health insurance, and Supplemental Security Income is a needed source of income. These are need-based benefits so an infusion of funds could cause a loss of eligibility.
As a response, you could make this person the beneficiary of a supplemental needs trust. You would name a trustee to act as the administrator, and the trustee would use assets in the trust to make the beneficiary more comfortable.
Benefit eligibility would not be negatively impacted as long as all of the rules are followed correctly.
Generally speaking, you would be leaving lump sum inheritances to the people that are named in your simple will. This can be a source of concern if you are going to be providing a bequest to a loved one who is not good with money.
Under these circumstances, you could establish a revocable living trust that would be for the benefit of a spendthrift heir after you die. While you are alive and well, you would act as the trustee and the beneficiary so you would still have access to your resources.
When you establish the trust declaration, you would name a trustee to succeed you, and you would include a spendthrift provision to protect the assets from the beneficiary’s creditors. In this document, you could instruct the trustee to distribute a certain amount each month, or you could provide distributions of earnings that are generated by assets in the trust.
Nursing Home Asset Protection
About 35 percent of senior citizens will reside in nursing homes at some point in time. A year in a nursing home in Kentucky or North Carolina comes with price tag of about $75,000 or more.
Medicare does not pay for a stay in a nursing home, but Medicaid will pick up the tab if you can gain eligibility. To get assets out of your own name so you can qualify for Medicaid, you could establish and fund an irrevocable Medicaid trust.
You would not have access to the principal after the trust has been created, but after the look-back period, it would not count if and when you apply for Medicaid. In the meantime, you could receive distributions of the trust’s income.
Streamlined Estate Administration
A will would be admitted to probate, and the executor would have to track down all the assets, inventory them, and prepare them for distribution to the heirs. Final debts must be paid so creditors are given a chance to come forward seeking satisfaction.
The procedure takes eight months to a year in most cases, and no inheritances are distributed until the estate has been probated and closed by the court. There are also expenses that accumulate during this process, and they can be relatively significant in some cases.
When a living trust is the asset transfer vehicle, the trustee would be able to distribute assets to the beneficiaries in accordance with your wishes. The transfers would not be subject to probate, avoiding the drawbacks.
We Are Here to Help!
As you can see, there are many different ways to proceed, and each situation is different. This is why it is wise to discuss your options with a licensed attorney.
If you are ready to take that step, you can schedule a consultation at our Charlotte, North Carolina or Huntersville, North Carolina office if you call us at 704-944-3245. The number in Ashland, Kentucky is 606-324-5516, and the number in Florence, Kentucky is 859-372-6655. If you would rather send us a message, you can fill out our contact form.
- What You Need to Know about the Medicaid Look-Back Rule - January 3, 2023
- How to Pass Down Your Legacy in Your Estate Plan - October 3, 2022
- Practical Steps to Take after Receiving a Terminal Diagnosis - September 30, 2022