In the area of estate planning, there are so many different types of trusts that serve very different purposes. Trying to determine which type of trust you may need requires an understanding of these different types of trust. For example, some clients question the difference between a living trust and a Medicaid trust. Our living trust attorneys can help you understand the distinction so you can decide which type of trust you need.
What is a living trust?
A “living trust” is a trust that becomes effective during your lifetime, as opposed to only becoming effective after your death. Like other types of trusts, property transferred to a living trust will be held and managed by your trustee until it is time to transfer the trust property to your heirs.
How do you create a living trust?
There are a few straightforward steps required to create a revocable living trust. Your estate planning attorney will initially meet with you to determine what your particular needs are. From this, your attorney will draft the trust document which contains all of the terms of the trust. That is the instructions for the trustee to follow. After drafting the trust document, the property must be transferred or “funded” into the trust. It’s really that simple if you have the assistance of one of our living trust attorneys.
Who controls the living trust property?
One great advantage of a living trust is that you can designate anyone you choose as trustee, including yourself. Indeed, in most cases, people name themselves as trustee of their living trust so they maintain complete control of their property. You can continue to buy and sell assets, as well as remove assets from the trust whenever you choose. Additionally, if you are married you also have the ability to designate your spouse as co-trustee. In order for the trust to continue to operate after your death, you must designate a successor trustee to take over management of the trust upon your death.
Living trusts are limited in coverage
One disadvantage to using a living trust is that is generally more limited in its coverage than a last will and testament. That is because a living trust refers only to specific property – the property that was funded to the trust.
What is the purpose of a Medicaid Trust
A Medicaid Trust allows you to protect your assets from Medicaid spend-down, to retain a limited income from the trust, and to leave any remaining funds to your beneficiaries. More importantly, a Medicaid trust allows you to remain eligible for Medicaid long-term care benefits. That way, you can have some money left over for your heirs, even after the high expense of long-term care. The way it works is, once you transfer your assets to the trust, and the applicable waiting period has passed, those assets will not be continued in determining your eligibility for Medicaid.
How Medicaid trusts work
The reason that a Medicaid trust works is that it is irrevocable. An irrevocable trust cannot be altered or amended. Medicaid laws require that such a trust be irrevocable because, if you can receive from the trust any portion of the principal, then the entire value of the trust becomes a countable asset for Medicaid eligibility purposes.
If a Medicaid trust is not irrevocable, then for the purposes of Medicaid, you would still be allowed to return the trust assets to yourself after you begin receiving benefits. What this also means is that if you never need Medi-Cal benefits, what happens to the assets used to fund your Medicaid trust will depend on the terms you included in that trust when you created it.
It is possible to maintain some control
Although you cannot revoke an irrevocable Medicaid Trust, there are some ways to maintain some control over your assets, especially if you find that you don’t really need the trust. There are cases where people create Medicaid Trusts, but then they never have the need to apply for long-term Medicaid benefits. In those cases, there are some changes that you can make that will allow you to regain control of your assets. If you retain the right to change the trustee of the Medicaid Trust, then you can have some control.
Consult with a living trust attorney
Before deciding whether a living trust is right for you, consult with a living trust attorney to discuss your options. Though creating a living trust basically requires transferring the title or ownership of your assets to the trust, the provisions of the trust agreement need to be properly drafted. For that reason, it is best for you to seek legal advice.
Join us for a FREE seminar today! If you have questions regarding estate planning, trust contests, or any other trust administration issues, please contact the Schomer Law Group either online or by calling us in Los Angeles at (310) 337-7696, and in Orange County at (562) 346-3209.
#estateplanning, #schomerlawgroup, #livingtrusts
- Things You May Need to Update in Your Estate Plan When You Enter Retirement - March 22, 2023
- 10 Estate Planning Tips You Cannot Afford to Ignore - March 21, 2023
- 7 Estate Planning Steps for the Beginner - March 16, 2023
