Some people do not even consider the possibility of using a trust as an estate planning tool because they harbor a misconception. They think that you permanently surrender control of assets that you convey into a trust.
On the one hand, this is false, and on the other hand, it’s true. We will provide some clarity in this post.
There is a legal concept called “incidents of ownership.” In layman’s terms, when you relinquish incidents of ownership, the assets are no longer in your name.
This can help you achieve certain objectives, and nursing home asset protection is one of them.
The majority of elders will need long-term care eventually, and paid care is very expensive. Medicare does not pay for custodial care, so you have to look elsewhere for support.
Medi-Cal will cover a stay in a nursing facility, and there is a Medi-Cal waiver program that will pay for in-home care. That’s the good news, but the bad news is that you can’t qualify if you have more than $2000 in countable assets.
As a response, you could convey resources into an income-only Medi-Cal trust. You can accept distributions of income that is earned by the trust, but you would not be able to access the principal. If and when you apply for Medi-Cal, the assets would not count.
These trusts are also used by people that are exposed to the estate tax. It is applicable on the portion of an estate that exceeds $11.7 million in 2021.
An irrevocable supplemental needs trust can be used to leave an inheritance to a loved one with a disability without disrupting eligibility for Medi-Cal and Supplemental Security Income. These are a handful of the most common reasons why these trusts are used, but there are others.
Changing an Irrevocable Trust
An irrevocable trust cannot be dissolved, but under some conditions, changes could be made. The trust could be written in a way that allows for specific modifications under certain limited circumstances.
A trust protector provision can be utilized to give the beneficiaries or the trustee the ability to engage an independent protector to examine the facts and make a determination on a proposed change.
You can alternately choose to give the trustee or the beneficiaries a power of appointment that would allow them to make certain changes that would be specified in the trust agreement.
Revocable Living Trust
In addition to irrevocable trusts, there is also the revocable living trust. As the name would indicate, you can in fact revoke or dissolve this type of trust, and it goes into effect while you are still living.
Because you retain incidents of ownership, the assets would count if you apply for Medicaid, and they would be part of your estate. They would also be available to litigants if you are the target of a lawsuit.
This being stated, there are some profound benefits that make a living trust more appealing than a simple will as an asset transfer vehicle.
When you have a living trust, the distributions that are made by the trustee after your passing would not be subject to probate. This is an expensive, time-consuming legal process that strips your family of privacy because it is a public proceeding.
You can include spendthrift protections when you have a living trust. The assets would be protected from the beneficiary’s creditors, and you can instruct the trustee to provide limited, measured distributions over an extended period of time.
Since the assets are consolidated, the administration is streamlined, and you can use a pour-over will to direct property that was in your direct personal possession at the time of your death into the trust.
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As you can see, there are different approaches that can be taken, and the right way to proceed will depend on the situation. Personalized attention is key, and this is what you will receive when you choose our firm.
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