This is the second installment of the two-part series that we are sharing to explain scenarios that would call for the utilization of a trust.
Probate Avoidance
If you use a will to state your final wishes, the executor would not be able to distribute assets to the inheritors independently without supervision. The will would be admitted to probate, and the probate court would preside over the process.
A notice is posted for creditors during probate, and they are given time to come forward. The executor will identify the assets, inventory them, and prepare them for distribution.
All of this will take nine months to a year if everything goes smoothly, and more complicated cases can be stalled in probate for longer periods of time. No inheritances are distributed while the estate is being probated by the court.
In addition to the time consumption, probate expenses typically consume between three percent and seven percent of the value of the estate. Privacy is lost when probate is a factor, because anyone that is interested can access the records to find out what transpired.
You can avoid all of these drawbacks if you use a living trust as the centerpiece of your estate plan. The trustee would be able to distribute assets to the beneficiaries outside of probate, so the negatives would be avoided.
Another trust administration benefit is the fact that the assets are consolidated under the umbrella of the trust, and this streamlines the process.
To account for assets that were never conveyed into the trust, a pour over will can be part of the estate plan. This type of will would direct the personally held assets into the trust after the passing of the grantor.
Spendthrift Protections
You may have concerns about leaving a significant direct inheritance to a person in the family that is not good with money. A similar dynamic can apply to a loved one that does not have any experience handling significant resources.
This is another reason why you may want to use a revocable living trust. While you are living, you would act as the trustee, so you don’t have to worry about losing control the assets.
The trust can include a spendthrift clause that would prevent the beneficiary from accessing the principal, and this would protect the principal from the beneficiary’s creditors. You can also allow for limited distributions over time to prolong the viability of the trust.
Nursing Home Asset Protection
More than one third of seniors will eventually need nursing home care, and a year in a nursing home in the Los Angeles area costs over $100,000. Medicare does not pay for the custodial care that nursing homes provide.
Medi-Cal will cover long-term care, but you can’t qualify if you have significant assets in your name. As a response, you can develop a nursing home asset protection plan that is centered around the utilization of a Medi-Cal trust.
The trust would be irrevocable, and you would not be able to act as the trustee or access the principal. However, you would be able to receive distributions of income that is generated by assets in the trust.
If and when you apply for Medi-Cal, the assets in the trust would not count. This being stated, you have to act in light of the 30-month look back period. You must fund the trust at least 30 months before you apply for Medi-Cal coverage.
Access Our Free Worksheet
We have prepared a very useful worksheet that you can go through to gain a more thorough understanding of the estate planning process. It is being offered free of charge, and you can visit our worksheet page to get your copy.
Schedule a Consultation!
Each estate planning situation is different, and there are many ways to proceed. Personalized attention is key, and this is exactly what you will receive when you work with our firm.
You can schedule a consultation appointment right now if you call us at 310-337-7696, and there is a contact form on this site to send us a message.
Cesar has received his Masters of Science in Integrated Design, Business and Technology from the University of Southern California.
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