Do I Need A Trust In My Estate Plan?

Nov 15, 2022

Basic estate planning usually begins with a will. Unfortunately, wills are not usually sufficient by themselves. For people who want the least expensive, fastest, most private way to get things to their loved ones, a will is almost never the correct tool for the job.

Trusts are fiduciary arrangements (like a private contract) that specify how assets will be distributed without involving the court. Depending on the type of trust, they can take effect before death, after death, or in the event of incapacity. Wills take effect only upon death and require authentication by a probate court, which can be time-consuming and expensive. Assets in a trust pass outside of probate, which eliminates the costs and complexity of court oversight and court costs, and often also saves taxes.

Other benefits of trusts include:

    • Your legacy is protected. Having a trust can help protect your estate from creditors or beneficiaries with insufficient money management skills.
  • You control distribution. In a trust, you can specify how and when distributions will be made. It is also possible to set up a revocable trust so that you retain access to the trust assets during your lifetime while determining who will receive any remaining property after you pass.
  • Your estate details remain private. While the process of probate is public, trusts allow assets to pass outside the probate system and remain private.

Trusts come in a variety of forms:

Revocable Trusts

A revocable trust lets you reserve all or some of the rights you had when you held things outside of the trust. You can still add and remove property, and mortgage or sell or gift it. Typically, you can change any or all of the terms of the trust, including eliminating it altogether. It’s intended as an asset management tool, allowing you the most flexibility during the time you’re able to manage it yourself. It also contains instructions and tools allowing the person(s) you named to manage things during any period of incapacity, and ALSO contains instructions for how things will be distributed to the beneficiaries you’ve named when you’re gone, avoiding any need for probate. This type of trust is typically the foundation of your estate plan and is a comprehensive asset management tool!

Irrevocable Trusts

An irrevocable trust cannot be changed or revoked after it has been signed. With this type of trust arrangement, assets may be removed from your estate when certain conditions are met, potentially reducing the value of the estate and associated tax burden. An irrevocable trust can also protect assets against judgments and creditors, which is beneficial if a beneficiary is in a career that is prone to lawsuits (doctor, lawyer, business owner). We often use irrevocable trusts to remove life insurance from your estate to avoid estate tax, and to create asset protection trusts for your beneficiaries. We may suggest irrevocable asset protection trusts to provide for a spouse during their lifetime, while preserving remaining assets for children from a first marriage.

Pet Trusts

We offer clients who have beloved pets the ability to leave explicit instructions about who provides for their care and also who manages the money for their care (which may or may not be the same person) in a pet trust. These are very common with expensive animals like horses, exotic breeds, or animals who live long lives like cockatoo birds (who may live to be 100 years old). But if you love your domestic pet, you might choose to leave explicit instructions about the care and feeding, housing and emotional needs of your pet and you can do that in a pet trust.

Medicaid Asset Protection Trust

Medicaid Asset Protection Trusts are exactly what they sound like: trusts designed to preserve Medicaid eligibility and protect assets from Medicaid recovery. Medicaid recovery is (in effect) a lien that applies to your assets (typically your home) after your death to reimburse the State for amounts paid for your care during your lifetime. This trust arrangement allows a person to qualify for Medicaid long-term care benefits while preserving assets in their estate. It requires you name a third party trustee (often the person who will get the home when you’re gone or a trusted friend or family member) but you reserve the right to live in the home and treat it as your own during your lifetime. In order to be eligible for this kind of trust, you cannot have applied for Medicaid yet and you need to remain well or self-pay for five years after creating the trust.

Special Needs Trust

Special needs trusts enable people who are chronically ill or living with a physical or mental disability to receive income or retain assets without reducing their eligibility for public assistance disability benefits such as Social Security, Supplemental Security Income (SSI), or Medicaid. If you have a vulnerable loved one, a special needs trust can help you protect their inheritance from you from having to be “spent down” or going to the State.

Conclusion

No matter how much or how little wealth you have accumulated, you’ve worked hard for it over your lifetime. It takes a comparatively small amount of time to fill out an intake questionnaire and spend an hour in conversation with a legal professional sharing your goals, values and concerns. We promise to bring our legal expertise to bear helping you make sense of all the options for creating a plan to preserve and pass on what you’ve worked so hard for in a way that honors your values.

If you have questions about how to create a plan for holding and managing your assets during your lifetime, handing them off to someone to help you during any period of incapacity and structuring them to best advantage to benefit the people you love when you’re gone, call White Oak Wills and Trusts at (503) 928-8664.

Recent News