As a layperson, you are not going to be aware of all the tools in the estate planning toolkit. This is one of the reasons why you should work with an estate planning lawyer to help you develop your plan.
A lot of people do not understand the fact that there are many different types of trusts that can be used to satisfy specific objectives. In this post, we will look at three different scenarios that would call for the utilization of a trust.
Special Needs Planning
Medicaid is a source of much-needed health insurance for many individuals with disabilities, and they receive income through the Supplemental Security Income (SSI) program. These are need-based benefits, so you cannot qualify if you have significant assets in your name.
If someone that is in this position was to receive a direct inheritance, their benefit eligibility could be lost. As a response, if you want to leave a bequest to a loved one that is enrolled in these benefit programs, you should utilize a supplemental needs or special needs trust.
You fund the trust and name a trustee to act as the administrator, and the person that you want to help would be the beneficiary. The trustee would be able to use the assets in the trust to provide goods and services that enhance the beneficiary’s quality of life.
As long as all the rules are followed correctly, benefit eligibility would not be impacted. Any remainder that is left in the trust after the death of the beneficiary would go to a successor beneficiary that you name in the trust declaration.
Inheritance Protection After Remarriage
You may have concerns about the inheritances that you want to leave to your children if you are getting remarried as a parent. In some of these cases, a qualified terminable interest property (QTIP) trust can be the ideal solution.
To implement this strategy, you convey income-producing assets and other resources into the trust. Your spouse would be the first beneficiary, and your children would be the successor beneficiaries.
If you die first, the trustee would distribute the trust’s earnings to your spouse for the rest of their life, and they could use property that is owned by the trust. For example, your surviving spouse could continue to reside in a home that you conveyed into the trust.
They would be secure, but they would not be able to change the terms of the trust. After their passing, your children would inherit the assets that remain in the trust.
Probate Avoidance and Spendthrift Protections
When a will is used as an asset transfer vehicle, the executor will admit the will to probate, and the court will provide supervision while the estate is being administered.
This is a time-consuming process that will usually take eight months to a year, and the inheritors receive nothing while the estate is being probated. Expenses include court costs, the executor’s payment, potential legal and accounting fees, and charges related to appraisals and liquidation.
The red ink that accumulates during probate will reduce the inheritances that will eventually be received by the beneficiaries. Another drawback is the loss of privacy because probate records are available to anyone wants to access them.
If you use a revocable living trust instead of a will, these negatives will not enter the picture. The trustee would distribute assets to the beneficiaries outside of probate, so the administration process would be simplified and streamlined.
When you draw up the trust agreement, you can instruct the trustee to distribute limited assets to the beneficiaries on an incremental basis for an extended period of time to limit spending. The principal would be protected from the beneficiary’s creditors, and this is another benefit.
Take Action Today!
Our doors are open if you are ready to work with a Burbank, California estate planning lawyer to put a custom crafted plan in place. You can schedule a consultation appointment if you call us at 818-937-2335, and you can use our contact form if you would rather send us a message.