A lot of people do not consider the possibility of using trusts because they harbor misconceptions. In this post, we will look at some of these untruths in an effort to provide clarity so you can make informed decisions.
Trusts Are Strictly for Multimillionaires
One of the most common myths that circulate about trusts is the notion that they are only useful for extremely wealthy individuals. This stems from the fact that there are trusts that are used by high-net-worth people to limit their exposure to estate taxes.
The federal estate tax carries a 40 percent top rate, but it is only applicable on the portion of an estate that exceeds $12.06 million. There are also 12 states that have state-level estate taxes, but California is not among them.
While it is true that irrevocable trusts are used to mitigate the impact of estate taxes, there are many different types of trusts. Some of them are very effective for people of relatively ordinary means, and in fact, a living trust is a better choice than a simple will in many if not most cases.
A major benefit of a living trust is the avoidance of probate. This is a costly and time-consuming legal process that takes place under the supervision of a court. A will would be admitted to probate, but the administration of a living trust is not subject to probate.
You may not feel comfortable leaving a large, direct inheritance to someone that is not good with money. This is the arrangement if you use a will, but you have control of the nature of the distributions when you have a living trust.
It would become irrevocable after your death, and the principal would be protected from the creditors of the beneficiaries. When you are drawing up the trust, you can instruct the trustee to provide limited incremental distributions over an extended period of time.
Another advantage is the ability to prepare for possible incapacity. A significant percentage of elders become unable to handle their own affairs late in their lives, and you can name a disability trustee to administer the trust in the event of your incapacity.
You Lose Control of Assets in a Trust
Another myth about trusts is the contention that you lose access to assets that you convey into a trust.
As we stated in the last section, you can name a disability trustee if you have a living trust. While you are alive and fully capable of making sound decisions, you would be the trustee of your own trust. You would have absolute control of the assets that have been transferred to the trust.
On the other hand, if you establish an irrevocable trust, you would not be able to act as the trustee. Aside from estate taxes, there are other reasons why people use irrevocable trusts, and Medi-Cal eligibility is one of them.
Most senior citizens will need professional living assistance at some point in time, and Medicare does not cover custodial care. Medi-Cal will pick up the tab for these expenses if you can gain eligibility, but you cannot qualify if you have significant assets in your name.
Assets that are held by an irrevocable trust do not count if you apply for Medi-Cal as long as you fund the trust at least 30 months before you submit your application.
Trusts Are Expensive to Create
When you work with an attorney to create a plan that involves the utilization of a trust, you make a modest investment, but it is not really an expense. A well-constructed estate plan can save money in the long run, and the efficient administration will ease the strain on your family.
Schedule a Consultation Today!
Today is the day for action if you been going through life without a plan to preserve your legacy and protect your family. If you are ready to end the procrastination, you can set up a consultation at our Burbank estate planning office if you call us at 818-937-2335.
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