Many people assume that a simple will is the right asset transfer document to use unless you are extremely wealthy. In reality, this is a widely embraced misconception. In this post, we will look at three reasons why you should consider using a trust instead of a will.
Medicaid Eligibility
Medicaid can be quite relevant even if you will qualify for Medicare because Medicare does not pay for long-term care. Over half of seniors will need paid assistance at some point in time, so this is something that everyone should take seriously.
The Medicaid program will cover a stay in a nursing home, and there is a Medicaid waiver that will pay for in-home care provided by a professional health aide.
However, you are probably aware of the fact that this is a need-based program that is only available to people with limited resources.
If you maintain direct possession of your property and use a will to facilitate postmortem transfers, the asset ownership would preclude you from Medicaid eligibility. On the other hand, if you convey the resources into an irrevocable Medicaid trust, they would not count.
This being stated, you have to fund the trust at least five years before you apply for Medicaid.
Streamlined Estate Administration
A lot of people think that the executor of an estate can distribute assets to the heirs through the terms of a will quickly with no hassles. In reality, nothing could be further from the truth.
When a will is used as an asset transfer device, it is admitted to probate, and the court provides supervision during the administration process. The court determines the validity of the will, and creditors are given time to come forward seeking satisfaction.
Probate will take about nine months to run its course at minimum, and no inheritances are distributed while the estate is being probated. Probate expenses reduce the value of the estate, and there is a loss of privacy because probate records are available to the public.
If you use a revocable living trust instead of a simple will as your primary asset transfer vehicle, the trustee would be able to distribute assets outside of probate. As a result, all the drawbacks would be avoided.
Spendthrift Protections
Do you have a child that is not good with money? An adult child who has a tendency to make poor financial decisions may have come to you for financial help over the years. When you are planning your estate, this can be a source of concern.
They certainly need to receive their inheritance, but what if they burn through the money too quickly and have nowhere to turn later on when times get hard?
A living trust can also provide you with peace of mind under these circumstances. We should point out the fact that this is a revocable trust, and you would act as the trustee while you are living, so you would maintain complete control of the assets.
You can include a spendthrift provision, and after your death, the trust would become irrevocable. The beneficiary would not be able to access the principal, and their creditors would “step into their shoes,” so the creditors would be in the same position.
There is asset protection on this level, and you can leave instructions in the trust agreement with regard to the nature of the distributions. For example, you could instruct the trustee to distribute a certain amount each month, or you could allow for distributions of the trust’s earnings.
With the long-term picture in mind, you could dictate larger lump sum distributions when the beneficiary reaches certain age thresholds.
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As you can see, there are different tools in the estate planning toolkit. The ideal approach will depend on the circumstances, so personalized attention is key.
When you choose our firm, we will gain an understanding of your situation and make the appropriate recommendations so you can make fully informed decisions.
If you are ready to get started, you can send us a message to request a consultation appointment at our Warren, NJ estate planning office, and we can be reached by phone at 908-222-8803.
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