Everyone is aware of the fact that a will can be used as a way to state your final wishes when you are planning your estate. However, under certain circumstances, a trust of some kind can be a better choice. We will look at some of these scenarios in this blog post.
Estate Tax Exposure
If you maintain personal possession of your assets and arrange transfers through the creation of a last will, these resources would be part of your taxable estate. Yes, there are taxes on large asset transfers that can come into play after you pass away.
We have a federal estate tax to contend with in all 50 states, and this tax carries a hefty 40 percent maximum rate. The exclusion is $5.43 million during the current calendar year. Anything that you are transferring that exceeds the amount of this exclusion is potentially subject to the federal death tax.
There is a caveat to the above with regard to asset transfers between spouses. There is an unlimited marital deduction that allows for unlimited asset transfers between people who are both U.S. citizens and legally married in the eyes of the law.
Our firm practices in the state of Connecticut, and we have a state-level estate tax in Connecticut. This tax carries a $2 million exclusion.
There are trusts that can be used to mitigate your exposure if your estate is in taxable territory. These would include charitable trusts, grantor retained annuity trusts, generation-skipping trusts, qualified personal residence trusts, and others. The optimal course of action will depend upon the circumstances.
Asset protection trusts can be used to shield assets from litigants seeking redress. You could also use an asset protection trust to protect assets that you are leaving to loved ones. A last will would not provide asset protection.
Special Needs Planning
Many people with disabilities depend on need-based government benefits like Medicaid and Supplemental Security Income. If you were to name someone with a disability in your will, a loss of eligibility could be the result.
With a special needs trust, you could provide for a loved one with a disability without impacting government benefit eligibility.
Many seniors seek Medicaid eligibility, because this program pays for long-term care. Medicaid does not pay for living assistance.
Medicaid is a need-based program, so there is a low asset limit. If you were to convey assets into a Medicaid trust, they would not be counted when Medicaid was determining your eligibility.
Learn More About Trusts
Our firm can help if you would like to learn more about how trusts can be used to satisfy your estate planning objectives. We offer free consultations, and you can send us a message through this page to set up an appointment: Hartford CT Estate Planning Attorneys.