Contrary to popular belief, a will is not a one-size-fits-all estate planning solution. There are many different scenarios that would call for the use of a trust. We are going to look at three of them in this post, and our follow-up entry will add to the list.
Nursing Home Asset Protection
Most seniors will qualify for Medicare when they reach the age of 65. This program will provide a strong health insurance safety net, but there are out-of-pocket expenses, including premiums, deductibles, and co-payments.
You should account for these relatively minor gaps when you are developing a budget for retirement, and most people can do this effectively. However, there is one gaping hole that is not as easy to fill.
The Medicare program will not pay for a stay in a nursing home, and the median annual cost for a year in a private room in a nursing home in Indiana is over $100,000. Married couples may face two different sets of nursing home bills, so this is an attention-getting situation.
Medicaid does pay for long-term care, but you can’t qualify if you have significant assets in your own name. You can develop the right financial profile if you establish and fund a Medicaid trust.
This would be an irrevocable trust, and you would not be able to act as the trustee or reach the principal. You would be able to continue to receive distributions of income that is generated by assets in the trust until you apply for Medicaid coverage.
We should point out the fact that timing is key, because there is a five year look back period. The funding must take place at least five years before you submit your application.
A significant inheritance with no strings attached can do more harm than good under some circumstances. If you want to guide a loved one toward positive behavior and instill a work ethic, you can make them the beneficiary of an incentive trust.
To explain by way of example, let’s say that you are leaving an inheritance to your young granddaughter. You can establish an incentive trust and instruct the trustee to cover all college expenses as long as your granddaughter is a student in good standing.
The trust can provide additional incentives for graduate school attendance, and you can arrange for the trust to provide a dollar for dollar match of the beneficiary’s salary after graduation.
This is one scenario, but you are free to include any stipulations, as long as you are not asking the beneficiary to do something that is illegal.
If you are going to be leaving an inheritance to someone that can be described as a spendthrift, you would not want to leave a direct inheritance through the terms of a will. You could use a living trust instead with a spendthrift clause to include the necessary protections.
After your passing, the trust would become irrevocable, and the beneficiary would not have direct access to the principal. Because of this arrangement, the assets would also be out of the reach of the beneficiary’s creditors.
When you are establishing the trust terms, you can instruct the trustee to distribute assets in a measured fashion over time if this is your choice. You may want to give the trustee the latitude to make discretionary distributions in emergency situations.
Many people would allow for portions of the principal to be distributed after the beneficiary reaches certain age thresholds.
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As you can see, there are multiple estate planning approaches that can be taken, and there are many tools in the tool kit. The right choice will depend upon the circumstances, and this is why you should discuss your options with a licensed attorney.
If you are ready to make the connection, we can be reached by phone at 219-865-2285, and you can fill out our contact form if you would like to send us a message.