Trusts are only for the wealthy, right?
This is one of the most commonly held misconceptions in the estate planning realm. A trust is an asset transfer vehicle that can be effective for people that are in different financial situations. Yes, high net worth individuals will use trusts, but they also drive cars. That does not mean that you have to be extremely wealthy to own a motor vehicle.
Do you lose control of assets that you signed over to a trust?
This is another misunderstanding based on some truth. There are irrevocable trusts, and you surrender incidents of ownership when you create this type of trust. You would not be able to act as the trustee, and for the most part, the terms would be permanent. In addition, there is the revocable living trust. You do not surrender incidents of ownership when you have this type of trust.
What are some of the reasons why you would want to use an irrevocable trust?
Getting back to people with a great deal of wealth, there is a federal estate tax. It is applicable on the portion of an estate that exceeds the exclusion. This exclusion is over $12.9 million at the time of this writing. People that are exposed to the estate tax will use irrevocable trusts of various kinds. When you convey assets into this type of trust, they are no longer part of your estate. These wealth protection trusts facilitate transfers at tax discounts. There are irrevocable self-settled asset protection trusts that protect assets from future creditors. This type of trust is not recognized in California, but you could establish one in Nevada or another state where they are accepted. A lot of people seek Medi-Cal eligibility late in their lives because this program will pay for a stay in a nursing home. Medicare does not cover the custodial care that nursing homes provide. Since it is a need-based program, you cannot qualify for Medi-Cal if you have significant assets in your name. Assets that are held by an irrevocable trust would not be counted if you apply for Medi-Cal. These are a few of the different reasons why an irrevocable trust can be used, and there are others.
What is the value of a revocable living trust?
If you establish this type of trust, you would be the trustee while you are living. As a result, you would have total control of the trust on every level. Because you do not surrender incidents of ownership, the assets would be part of your estate for tax purposes. They would be available to creditors seeking payment, and they would count if you were to apply for Medi-Cal. There are a couple of major benefits that make a living trust more effective than a will. This is why it is the most commonly used estate planning vehicle aside from a simple will. One of the advantages is the avoidance of probate. This is a legal process that takes place under the supervision of a court. A will would be admitted to probate, and the process can take from nine to 24 months if there are no complications. No inheritances are distributed during this interim period. With a will, the inheritors receive lump sums with no protections going forward. If you have a living trust, you control the distribution terms. You include a spendthrift provision, and the trust would become irrevocable after your death. This would protect the assets from the beneficiaries’ creditors. The trust could remain active for years providing limited distributions to the beneficiaries on a monthly basis, or you may prefer an alternate arrangement.
Schedule a Consultation Today!
As you can see, there are many different trusts that can be used when you are planning your estate. The ideal way to proceed will depend on the circumstances, and this is why legal counsel is invaluable.
When you work with our firm, we will gain an understanding of your situation and your objectives. Subsequently, we will make recommendations and explain your options so you can make informed decisions.
If you are ready to get started, you can schedule a consultation at our Burbank, CA estate planning office if you call us at 818-937-2335. There is also a contact form on this site you can use to send us a message.