Trusts

There are a variety of different types of trusts and one or more of them may be appropriate for you based upon your circumstances.

Living Trust

A Living Trust is a trust that is both created and funded during your life. Funding the trust means transferring ownership of your assets to the trust during your lifetime. This trust is revocable so you can transfer assets back out of the trust during your life, amend the trust, or even revoke the entire trust. Due to the fact that the trust is funded during your lifetime, there are tax filing requirements for the trust. Our firm can refer you to an accountant familiar with trust tax issues.

If used properly, this type of trust can avoid the necessity of probate after your death. This is generally important in the following types of situations (although this is not an exhaustive list):

• Where you have a distributee (person who would inherit if you did not have a Will of Living Trust) who you think will attempt to challenge your Will
• Where you have one or more distributees who are missing or will be hard to locate
• Where you have a large number of distributees (e.g., you have no spouse or children and several deceased siblings who each have multiple children)
• Where one or more of your distributees is incompetent
• Where your assets need immediate management (e.g., stock portfolio)

Even if you have a Living Trust, we recommend that you also execute a Will that simply pours over any assets you forgot to transfer to the Living Trust. If no assets are forgotten, nothing needs to be done with the Will after your death. If you do forget assets, your Will may need to be probated, but the pour over provision will allow all of your assets to ultimately end up in the Living Trust to be administered according to your plan.

Irrevocable (Medicaid) Trust

One option for preserving assets in the event you need long-term care is an Irrevocable (Medicaid) Trust. In order to protect your assets from being calculated in determining whether you qualify for Medicaid, the trust must be irrevocable and it must be created and funded at least 5 years before you apply for Medicaid.

After the Irrevocable Trust is funded, you are allowed to receive the income from any assets that are in the Trust, but your rights to the principal are severely restricted. You may retain the right to live in your home and that home may be sold and the proceeds used to purchase another home for you to live in.

Although the Irrevocable Trust is irrevocable, it can be partially or fully revoked under certain limited circumstances if you need long-term care before the 5 year period ends and there is no other way to fund your care.

Due to the fact that the Trust is funded during your lifetime, there are tax filing requirements for the trust. Our firm can refer you to an accountant familiar with trust tax issues.

Special/Supplemental Needs Trust (SNT)

A Special/Supplemental Needs Trust (SNT) may be appropriate for you if you intend to leave money to a child or other loved one who is disabled and/or receives public assistance. The money in the SNT is not counted towards the beneficiary’s income or resources for purposes of their public assistance eligibility. The funds in the SNT are used to supplement, but not replace, the benefits they are already receiving. You can also name a beneficiary who will receive the remaining funds (if any) at the time the beneficiary passes.

The trustee for a SNT should be carefully selected because, if the person is not familiar with the laws surrounding SNTs, they could inadvertently make payments that could jeopardize the beneficiary’s benefits. If you do not have a family member or friend who would be a good choice for trustee, we can help make suggestions for professional or corporate trustees who can help.

Trust for Minor Children

In discussing estate planning with our middle-income clients who have minor children, we have found that for many of them, if both parents were to pass while their children are still minors, their largest assets are their retirement and life insurance. For clients in this situation who do not want to undertake the work necessary to create and fund a Living Trust, one option is creating a Trust for their minor children that is funded only if both parents die before the children reach a certain age.

To fund this Trust, the parents simply name the trust as the contingent beneficiary for their retirement and life insurance policies. Once the children reach the age selected by the clients for the termination of the Trust, they change the contingent beneficiaries of those assets to the adult children.

The clients’ Wills also pour over to the Trust, in the event the other parent has also passed, until the children reach the age selected by the parents, at which time the assets pass to the adult children directly through the Will. This avoids having to amend the Will after the children reach the selected age.

Creating a Trust like this avoids having a guardian of the property appointed for your child. A guardian of a minor child must generally obtain court approval before every expenditure, which can be a time consuming and expensive process.