Far too many people think that a simple will is the right asset transfer vehicle to use unless you are a multimillionaire. In fact, this is not the case at all. Different circumstances can call for the utilization of a trust instead of a will, and we will look at some of them here.
Providing for a Spendthrift Heir
If your only estate planning document is a will, the inheritors would receive direct, lump-sum inheritances. This can be a source of concern if you will be leaving an inheritance to someone who is not good with money.
As a response, you can use a revocable living trust with a spendthrift provision as the centerpiece of your estate plan. You would still have access to the assets because you would act as the trustee while you are alive.
In the trust declaration, you would name a successor trustee to assume the role after your passing, and your loved one would be the beneficiary. At the time of your death, the trust would become irrevocable, and the principal would be protected from the beneficiary’s creditors.
When you are creating the trust declaration, you can dictate the terms. For example, you can instruct the trustee to distribute a set amount each month for a certain period of time.
The creditors would be able to attach assets after they have been distributed to the beneficiary, so the smaller incremental distributions would be part of the asset protection plan.
Nursing Home Asset Protection
About 35 percent of elders will require nursing home care eventually, and these facilities are very expensive. Medicare does not pay for long-term care, but Medicaid will cover the expenses if you can gain eligibility.
Since Medicaid is a need-based program, you can’t qualify if you have significant assets in your own name, but there is a solution. You could convey assets into an irrevocable Medicaid trust to divest yourself of direct ownership of the assets.
You would not be able to touch the principal, but you could continue to receive distributions of interest income until and unless you apply for Medicaid.
Special Needs Planning
If you are going to be leaving an inheritance to a family member with special needs, you have to consider the big picture. Many people with disabilities rely on Medicaid as a source of health insurance, and Supplemental Security Income provides a bit of monthly cash.
These are need-based benefits, so a windfall of money can cause a loss of eligibility. To preserve the benefits, you could establish a supplemental needs trust for the benefit of someone that is in this position.
The trustee would be able to use assets to make the beneficiary more comfortable in many different ways, but ongoing eligibility would not be forfeited.
Probate Avoidance
If you use a will to state your final wishes, you would name an executor to act as the administrator. After you are gone, the executor would admit the will to probate, and the court would supervise during the administration process.
No inheritances are distributed while the estate is being probated by the court, and it will take about eight months to a year in most jurisdictions. The value of the estate will be reduced by the expenses that accumulate during probate, and probate records are available to the general public.
We touched upon the spendthrift protections that living trusts provide, and another benefit is the fact that assets in the trust can be distributed to the beneficiaries outside of probate.
We Are Here to Help!
As you can see, there are many tools in the estate planning toolkit. You have options, and you should explore them thoroughly before you make any final decisions.
We would be more than glad to gain an understanding of your situation and provide you with recommendations based on the circumstances. Ultimately, you can go forward with the knowledge that you are providing for your loved ones in the optimal manner.
You can schedule a consultation at our Warren, NJ estate planning office if you call us at 908-222-8803, and you can fill out our contact form if you would like to send us a message.
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