The most important reason why you should discuss your personal situation with a licensed estate planning attorney is because there are many different options. There is no one-size-fits-all inheritance plan that is right for everyone so you should learn about your options so you can make the right choices. With this in mind, we will look at the value of irrevocable trusts in this post.
Incidents of Ownership
One major distinction between the different types of trust is the ability to revoke the trust. Revocable living trusts can be changed or completely dissolved at any time. If you establish this type of trust, you could act as the trustee and the beneficiary while you are living so you would have absolute control.
Revocable living trusts provide a number of different benefits, including asset consolidation, flexibility, the ability to include spendthrift protections, disability provisions, and streamlined administration.
Because you do in fact have this level of control, you are retaining incidents of ownership for legal purposes. This means that the assets in a revocable living trust are not protected from creditors while you are living. They would essentially be looked at as your personal property under most circumstances.
There are also irrevocable trusts that cannot be rescinded, and generally speaking, they cannot be changed, with limited exceptions. Though it can seem disconcerting to surrender control of assets, in some cases an irrevocable trust will be the right choice.
Special Needs Planning
Most people with special needs rely on Medicaid as a source of health insurance, and these individuals often qualify for Supplemental Security Income (SSI). These are need-based programs so an improvement in financial status can cause a loss of eligibility.
This is something to keep in mind if you have someone with a disability on your inheritance list. If you give them a direct inheritance, the beneficiary could lose eligibility for these much-needed government programs. To prevent this, you could convey resources into an irrevocable supplemental needs trust.
Under the rules of these programs, the trustee of a supplemental needs trust can use assets in the trust to make the disabled beneficiary more comfortable in certain ways. As long as the rules are followed correctly, there would be no negative impact on benefit eligibility.
Medicare does not pay for a stay in a nursing home, and these facilities are extremely expensive. Medicaid will pick up the tab, but you can’t qualify if you have significant assets in your own name. Some people will convey assets into an irrevocable income-only Medicaid trust well before applying for Medicaid.
You would be able to receive distributions of income earned by the trust’s assets until you apply for Medicaid to pay for long-term care. If you do in fact submit an application for Medicaid coverage, the assets in the trust would not count against your eligibility status.
Estate Tax Efficiency
Most families are not required to pay the federal estate tax, because there is a credit or exclusion that allows you to transfer a certain amount before the tax would become applicable. At the time of this writing, this amount is $11.4 million. There are annual inflation adjustments so that number will probably go up next year.
Those who are affected must take steps to mitigate the exposure to the estate tax and its 40% top rate. This can be done with certain types of irrevocable trusts. These would include generation-skipping trusts, qualified personal residence trusts, grantor retained annuity trusts, and a number of others.
We Are Here to Help!
If you would like to discuss your estate planning goals with a licensed attorney, you can reach us by phone in Kentucky at 606-324-5516 (Ashland, KY) or 859-372-6655 (Florence, KY). In North Carolina, the number is 704-944-3245 (Charlotte, NC or Huntersville, NC), and if you would prefer to reach out electronically, simply send us a message through our contact page.