One of the most common estate planning misconceptions is the idea that you should definitely use a simple will to state your final wishes unless you are a multimillionaire. Very wealthy individuals do use trusts to reduce their estate tax exposure, but that’s only half of the story.
There are several reasons why people that do not face estate tax exposure should use trusts, and we will look at four of them here.
Special Needs Planning
A high percentage of people with disabilities rely on Medi-Cal for health insurance, and they receive a bit of cash monthly cash through the Supplemental Security Income program. These are need-based benefits that are only available to people with very limited financial resources.
Once eligibility has been granted, it is not necessarily permanent. A windfall could cause a loss of eligibility, and this is something to consider if you have someone with a disability on your inheritance list.
You would not want to leave them a direct inheritance through the terms of a will, but you could establish a supplemental needs trust instead.
The trustee that you empower would be able to use assets in the trust to improve the beneficiary’s quality of life in many ways. As long as everything is done properly, ongoing eligibility for Medi-Cal coverage would not be impacted.
Unless you have a small estate, if you use a will as your asset transfer vehicle, it would be admitted to probate. This is a legal process that takes place under the supervision of a court.
The people that are named in the will would not receive their inheritances until this process has run its course, and it will usually take nine months at minimum. Probate expenses are considerable, and they chip away at the value of the estate before it is distributed among the inheritors.
Anyone that wants to find out the terms can access probate records to get all the details, and it opens a window of opportunity for disgruntled parties that may want to challenge the will.
These probate drawbacks are avoided if you use a revocable living trust instead of a will. You would still have access to assets that you convey into the trust, so this should not be a source of concern. And as the name would indicate, you could revoke it at any time.
After your passing, the trustee that you name would follow your written instructions and distribute assets to the beneficiaries. The probate court would not be involved.
Nursing Home Asset Protection
Many elders seek Medi-Cal eligibility late in their lives, because Medicare will not pay for a stay in a nursing home. Since you cannot qualify if you have significant assets in your own name, you could convey assets into an income-only Medi-Cal trust.
The principal would be out of reach, but you would be able to continue to receive income that is generated by assets that are held by the trust. In you ever apply for Medi-Cal, the assets in the trust would not count against you.
If you leave a significant direct inheritance to a person that is not good with money through the terms of a will, they could squander it much too quickly. As a response, you could make someone with these proclivities the beneficiary of a living trust with a spendthrift provision.
The principal would be protected from the beneficiary’s creditors, and you could arrange for the trustee to distribute limited assets on an incremental basis over an extended period of time.
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Now is the time for action if you are going through life without an estate plan. As you can see, there are different ways to proceed, and the optimal course of action will depend upon the circumstances.
We can get to know you, gain an understanding of your situation, and help you devise a custom crafted plan that is ideal for you and your family.
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