Many people are surprised to learn just how popular living trusts have become in recent times. For years, trusts were viewed as estate planning techniques that could only benefit really wealthy families who needed more flexible ways to pass on wealth while still maintaining some level of control over the management of the estate. Because of that flexibility and the broad array of useful purposes trusts can serve, they are now an integral part of many average estate plans. If you haven’t yet added a trust to your estate plan and have been wondering whether you should, you need to learn how to recognize when a living trust might be right for you.
What is a Trust?
Trusts are, at their core, relationships where your property is held by a neutral party for the benefit of someone else. As the creator of the trust, you are considered the Grantor or Settlor. It is your responsibility to see to it that the trust is properly funded by transferring title for certain assets into the trust, which is administered by the Trustee. Eventually, those assets are managed and disposed of in accordance with the terms of the trust, and provide benefits to your named beneficiaries.
What Can a Trust Do for You?
Because trusts are flexible in design and scope, they can enable you to accomplish many things that a will cannot. For example, a trust can be an important tool for ensuring that your property does not become subject to the probate process when you die. Because assets in the trust are not in your name, and are distributed by the trust after you pass away, probate is not necessary. Avoiding probate in this manner also helps to maintain a higher degree of privacy when it comes to the management of your estate.
Trusts can also be used to manage the conditions under which certain heirs receive their inheritances. That can be an important way to ensure that a spendthrift nephew doesn’t squander the inheritance you want to leave to him. Trusts can also be a great option for managing charitable giving after you die, dealing with certain complex tax issues, and providing structured growth of assets over time.
How to Know When a Trust is Right for You
In addition to those important trust benefits, there are three other instances in which a trust can prove extremely valuable. Each of these needs can be most effectively met through the creation of a trust:
- Medicaid Planning. If you’re in your younger years, or even middle-aged, chances are that you may not be able to imagine yourself having need of Medicaid benefits. After all, most people associate that program with those who live in poverty. Despite that common misconception, the fact is that many seniors end up relying on Medicaid to cover the costs of nursing home care later in life. Nursing home costs are higher than they’ve ever been, and most experts expect them to increase even more in the future. Few of today’s seniors can afford the more than $200 a day rate that many of these facilities charge to their residents. As a result, seniors need to rely on programs like Medicaid to help them meet those financial obligations and ensure that they get the care they need. Effective Medicaid planning should begin relatively early in life, to ensure that you are able to meet the program’s strict eligibility requirements when that time comes. That means protecting your assets in a way that ensures that you can meet the low asset limits required for approval. By establishing a Medicaid trust, you will have an irrevocable trust that can maintain ownership of your assets and allow you to earn interest on their value even though the assets themselves won’t be counted for program eligibility purposes.
- Special Needs. A special needs trust can be an important tool to use when you have a child whose special needs require ongoing financial assistance when you die. This is an irrevocable trust that can pay for many of that child’s needs without interfering with his or her eligibility to receive important government benefits. Estate planning can be difficult when you have a disabled child or other family member in need of assistance, but this trust can make that process much easier.
- Incapacity Planning. Incapacity can strike at any moment, leaving you unable to make even the simplest of decisions and rendering you incapable of managing your own financial and healthcare affairs. If that happened to you tomorrow, would you be prepared? Most people have no strategy for dealing with that possibility, and that could leave their families struggling to care for them during their incapacitation.
With a revocable living trust, you can prepare for those types of situations and ensure financial even when the worst comes to pass. Using this trust, you would transfer assets into a trust that had you as the named Trustee and someone else designated as a successor Trustee. That enables you to maintain control over your finances while you are still able, but provides a stable succession plan in case you lose the capacity to manage your affairs.
Estate Planning Matters
As you can see, there’s more to estate planning than just ensuring that your assets are properly distributed after you die. The best estate planning also provides for your wellbeing later in life, and enables you to plan for your family’s future and your own possible incapacitation. Trusts can be an important part of that planning strategy, and should be viewed as critical tools that can ensure that your plan meets your every need.
At Biddinger & Estelle, PC, our attorneys have the expertise and experience you need to help you recognize when your estate plan can benefit from the inclusion of a living trust. If you would like to know more about the many ways that trusts can help you prepare for the future, contact us at our website or give us a call at (989) 872-5601 today.