There are estate planning misconceptions that float around about trusts in general. Many people are under the impression that you lose direct personal control of assets that you convey into any type of trust.
Though there is some truth in this notion, the absolute nature of the statement is completely false, and we will provide some clarity here.
Irrevocable Trusts
Though there are variations under these umbrellas, there are essentially two different types of trusts: revocable trusts and trusts that cannot be revoked or rescinded.
If you establish an irrevocable trust, you would not be able to serve as the trustee. Generally speaking, you would not be able to change the terms, and you would not have access to the principal. However, you could receive monetary distributions from certain irrevocable trusts.
Why would you want to surrender control in this manner if there is another option? There are reasons why you may want to get resources out of your own name.
For example, many elders require nursing home care, and Medicare will not pay for the custodial care that these facilities provide. Medi-Cal is the widely embraced solution, but you can’t qualify if you have significant assets.
In an effort to gain eligibility, you could convey assets into an irrevocable Medi-Cal trust. You would not have access to the principal, but you could receive distributions of earnings that are generated by assets in the trust.
Another reason why people use irrevocable trusts is to gain estate tax efficiency. These would be high net worth individuals that have estates that are valued at more than $11.58 million.
These are a couple of the different utilizations, but there are others.
Revocable Living Trust
On the other side of the spectrum, you have the revocable living trust. You retain the right of revocation when you establish a living trust, and you can act as the trustee and the beneficiary. As a result, you have complete access to the resources.
This type of trust would be of no value if you want to qualify for Medicaid or reduce your estate tax exposure, but there are other reasons to use a living trust.
One of them is the streamlining of the estate administration process. All or most of the assets that comprise the estate would be held by the trust. This will provide a turnkey situation for the trustee that will succeed you after your passing.
Plus, the distributions would not be subject to the process of probate. When a will is used, it must be admitted to probate, and the court would provide supervision. Probate is time-consuming and expensive, and the heirs do not receive their inheritances while the estate is being probated by the court.
Living trusts also provide flexibility with regard to the way that the beneficiaries will receive their inheritances. If you would prefer to allow for limited distributions over an extended period of time, you can leave these instructions when you establish the trust agreement.
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As you can see, you have options when you are planning your estate. The ideal approach will depend upon the circumstances, and this is why you should discuss your situation with a licensed attorney.
Our doors are open if you are ready to have this conversation. We do everything possible to keep our office environment safe given the dangers that are presented by the novel coronavirus. This being stated, if you would prefer a remote consultation, it can be arranged.
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