A lot of people assume that a will is the only document that you need when you decide to plan your estate. The truth is, you ALWAYS need more than just a will. For some, there are situations that call for the utilization of a trust, and we will dissect the subject in this post.
Lump Sum Inheritances
There are severe limitations when you use a will to serve as your asset transfer vehicle. First, the people that are named as beneficiaries in a will may receive lump sum bequests all at once. This can be fine for older, established individuals with sound money management capabilities.
However, in the real world, there are folks that are prone to overspending and poor decision-making. If you have someone like this in the family, they may have come to you for help when they are in financial difficulty. At some point, you will not be around to provide it.
As soon as a direct inheritance is received, the assets can be reached by creditors that file lawsuits. The lack of asset protection is another factor to take into consideration.
On the other hand, if you use a revocable living trust to serve as your asset transfer vehicle, you will act as the trustee while you are living. You would be able to do anything you want to do with the assets while you are alive and well, so you do not lose control.
When you are drawing up the trust declaration, you name a person or a professional fiduciary to act as the successor trustee. You can leave instructions regarding the way you want the assets to be distributed to the beneficiary after your death.
If you want to determine a certain dollar amount each month for a number of years until the beneficiary reaches an age threshold, you can include these instructions. After your passing, the trust would become irrevocable, so the principal would be protected from creditors.
The trustee will then follow your instructions and distribute assets to the beneficiary in accordance with your wishes. This is one of the benefits that living trusts provide, but there are others that we will explain at another time.
Medicaid Eligibility
Most senior citizens will need help with their activities of daily living at some point in time. Long-term care is quite expensive, and by expensive, we mean over $100,000 a year for a stay in a nursing home. That’s a lot of money to come up with when you have been retired for years.
Medicare does not cover custodial care, so that is not the solution. Medicaid will pay for long-term care, but you cannot qualify if you have more than $2,000 in countable assets in your name.
You can address the situation if you establish an irrevocable trust. While you are living independently, you would be able to receive distributions of the trust’s earnings. The principal would be out of your reach, but it would not be counted if you apply for Medicaid.
However, you have to take action well in advance because of the five-year look back period. If you fund the trust today, you will be ineligible for Medicaid for a period of 60 months.
You can qualify as a homeowner, but there is a Medicaid estate recovery mandate. The program is required to seek reimbursement from your estate if you are enrolled while you are living. They could place a lien on the home if it is in your possession at the time of your death.
As a response, you can simply convey your home into the trust. You would be able to continue living in it as usual, so there would be no disruptions, but it would be protected during the recovery phase.
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Our doors are open if you are ready to put a tailor-made plan in place. Our Crown Point, IN location can be reached at 219-865-2285, and there is a contact form on this site you can use to send a message
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