There are a number of different scenarios that would call for the utilization of a trust instead of a simple will. In this post, we will look at three of them, and we will follow up with some of the other reasons why trusts should be used in our next entry.
When you are getting remarried, you may have concerns about the inheritances that you want to leave to your children from your previous marriage. This can be especially sensitive if you are very successful financially and you are quite a bit older than your fiancé.
Clearly, a premarital agreement can be part of the plan, and there is another estate planning tool that can be quite effective when these circumstances exist.
The device that we are referring to is the qualified terminable interest property (QTIP) trust. To implement this strategy, you fund the trust and you name a trustee to act as the administrator.
Your spouse would be the first beneficiary of the trust, and your children would be the successor beneficiaries. If you predecease your spouse, they would receive distributions of the earnings that are generated by assets in the trust, and they would be able use trust-owned property.
The surviving spouse would be well taken care of throughout their life, but they would not be able to change the terms of the trust. After their passing, the children would inherit the assets in the trust.
Special Needs Planning
People with disabilities are obviously going to require expensive medical care throughout their lives. Many of these folks cannot work, so they can’t get health insurance through their employers.
The widely embraced solution is Medi-Cal, and as we all know, this is a need-based health insurance program. People with disabilities that qualify for Medi-Cal also receive Supplemental Security Income.
If you want to leave an inheritance to someone that is relying on these benefits, you can create a supplemental needs trust. The trustee would be able to use assets in the trust to purchase goods and services that enhance the life of the beneficiary.
Government benefit eligibility would not be impacted, and there is another advantage. Medi-Cal is required to seek reimbursement from the estates of beneficiaries. Assets that remain in a third party special needs trust would be out of their reach during recovery efforts.
You may have concerns about leaving a significant inheritance to a young heir because the “silver spoon” could yield negative consequences in the long run. A situation like this can be addressed through the utilization of an incentive trust.
It can be structured in any way that you choose, but we will provide a hypothetical example. You could require the beneficiary to attend college as a condition that must be met. The trustee could be instructed to pay for tuition and provide distributions to the beneficiary to cover all other expenses as long as the student stays in school.
You can then allow a dollar for dollar match of the beneficiary’s earnings after they graduate. The trust could provide a larger lump-sum distribution when the beneficiary reaches a certain age.
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