Trusts are legal devices that are often misunderstood. If you establish a trust, you make the trust the owner of the property that you convey into it. This can lead you to the belief that you will never have access to the assets again after you fund the trust.
While this is a reasonable assumption, it is not entirely true. There are different types of trust, and the level of access will depend on the individual trust and the purpose that it serves.
An irrevocable trust is self-explanatory in a broad sense. After the trust has been created and funded, you cannot change your mind, revoke the trust, and take back direct personal possession of the property.
Why would you be willing to accept this arrangement?
There are some reasons why people want to surrender incidents of ownership in a legal sense. For example, high net worth individuals have estate tax concerns. In Connecticut where we practice law, there is a state level estate tax, and there is also a federal estate tax.
If you convey assets into an irrevocable trust of some kind, they would no longer be part of your estate for tax purposes. In some cases, you can receive distributions from these trusts, and they typically facilitate transfers to the heirs at a tax discount.
These trusts are also used by some people that want to qualify for Medicaid. This program is relevant to elders that were never financially needy, because it will pay for long-term care. Medicare does not cover custodial care, and it is very expensive.
Since Medicaid is a need-based program, you cannot qualify if you have more than $2000 in countable assets in your own name.
A commonly used strategy would be to convey assets into an irrevocable, income-only Medicaid trust. The grantor of the trust would be able to accept distributions of earnings that are generated by the principal. If the grantor ever applies for Medicaid coverage, the principal would not be counted.
These are couple of the reasons why people use irrevocable trusts, but there are others.
Revocable Living Trusts
The other type of trust that is commonly used is the revocable living trust. You can in fact revoke or rescind this type of trust at any time. Plus, you have total access to all the assets that have been signed over to the trust, because you can act as the trustee and the beneficiary while you are alive.
Because you do not surrender incidents of ownership, this type of trust would not be useful for estate tax efficiency and Medicaid planning purposes. Assets in the trust would be counted in both instances.
There are other reasons why people use these trusts, and in fact, the living trust is the most commonly used estate planning device aside from a simple will. We will explain all the benefits in a future post.
Attend a Free Seminar
You found your way to this website because you are looking for information about estate planning, and there is a lot of it here for you to explore. In addition to these resources, we also conduct seminars at strategic locations in and around Hartford.
The sessions are offered free of charge, and we get a lot of positive feedback from attendees. To see the schedule and obtain registration information, visit our seminar page.
Need Help Now?
If you are ready to take action to put a plan in place, our doors are open. You as you can see, there are different ways to transfer assets, and the right choice will depend upon the circumstances.
We can gain an understanding of your situation, help you make informed choices, and take the right steps to bring your wishes to fruition when the time comes.
To schedule a consultation appointment, give us a call at 860-548-1000. If you would rather send us a message at first, fill out our contact form and we will get back in touch with you promptly.