You may be reluctant to establish a trust if you are under the impression that you cannot revoke the trust after it has been created. After all, you do not have a crystal ball, and you may find that you need the assets yourself at some point.
This is an understandable concern, and a lot of people think this way, but it is actually a misconception.
There are irrevocable trusts that you cannot dissolve under most circumstances, and you cannot act as the trustee when you have this type of trust. It is true that you would surrender incidents of ownership, but in some cases, this can be a good thing.
Medicare does not pay for a stay in a nursing home, and it does not cover in-home custodial care. The majority of seniors will need some type of paid living assistance, and over 30 percent will reside in nursing homes.
Custodial care is extremely expensive, so this is a major challenge. Fortunately, there is a solution in the form of Medicaid eligibility because this program will pay for long-term care.
The problem is, you cannot qualify if you have more than $1600 in countable assets in your own name. As a response, you could convey income-producing assets, your home, and other resources into an irrevocable trust.
If you take this step, you would no longer have access to the principal, but you could accept distributions of the trust’s earnings. The assets in the trust would not count if you apply for Medicaid as long as you fund the trust 60 months before you seek eligibility.
We should point out the fact that your home is not a countable asset for Medicaid eligibility purposes. However, the program is required to seek reimbursement from your estate after your passing if you are a Medicaid beneficiary.
They can place a lien on your home if it is in your direct personal possession at the time of your death. This is why you would want to convey the property into the trust.
Irrevocable trusts are also used by people that are exposed to estate taxes. When you convey assets into the trust, they are no longer part of your estate, and the trusts that are used facilitate discounted transfers.
The federal estate tax is applicable if your estate exceeds $11.7 million in value. This figure is called the exclusion, and here in Connecticut, we have a state-level estate tax with a $7.1 million exclusion.
Since multimillionaires do in fact use trusts, a lot of people assume that trusts are only useful for the wealthy, but this is simply not the case.
Revocable Living Trust
The revocable living trust is another variety, and the name is self-explanatory with regard to revocability. You can in fact dissolve this type of trust after it has been created, and if you establish a living trust, you would be the trustee while you are alive and well.
A living trust would not be helpful for someone that is exposed to estate taxes, and the assets in the trust would count if you apply for Medicaid. They would also be in play if you are the target of a lawsuit.
There are two major reasons why people use revocable living trusts, and the avoidance of probate is one of them. This is a costly and time-consuming public process that is necessary when a will is used as an asset transfer vehicle.
Distributions through the terms of a living trust after the death of the grantor are not subject to probate.
If you use a will to facilitate asset transfers, the inheritors will receive lump sum distributions all at once with no asset protection or spending guardrails. When you have a living trust, you can include spendthrift protections, and this is another benefit.
A significant percentage of elders become unable to handle their own affairs at some point in time due to cognitive impairment. If you have a living trust, you can empower a disability trustee to assume the role if it ever becomes necessary.
We Are Here to Help!
As you can see, there are different approaches that can be taken. We can gain an understanding of your situation and provide recommendations so you can make fully informed decisions.
If you are ready to get started, you can schedule a consultation at our estate planning offices in Glastonbury or Westport, CT if you call us at 860-548-1000.
There is also a contact form on this site you can fill out if you would like to send us a message.
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