A lot of people think that trusts are mysterious documents that are used by people with very complicated estate planning objectives. In reality, they are just legal tools that can be used to achieve certain goals. The underlying objectives are not necessarily complex and difficult to understand.
In this post, we will look at a handful of reasons why you may want to use a trust of some kind, and you may be surprised when you absorb the information.
Protect a Spendthrift
If you use a last will to state your final wishes without any type of trust to accompany it, the people that you name in the document would receive direct, lump sum inheritances. You may have no problem with this arrangement as it applies to some members of your family.
However, if you are going to be leaving an inheritance to someone that is not good with money, this can be a source of concern. Individuals that are prone to excessive spending often find themselves in need of financial assistance, and you won’t be around to provide it.
You could account for this type of situation through the creation of a revocable living trust. While you are alive, you would be able to serve as the trustee and the beneficiary, so you would lose no control of the assets.
In the trust declaration, you would name a trustee to succeed you, and the person that you want to provide for would be the beneficiary (and you could have multiple beneficiaries).
The trust could include a spendthrift provision that would protect the principal from the beneficiary’s creditors. You could instruct the trustee to distribute a certain amount each month, and the beneficiary would not have the ability to change this arrangement in any way.
It would be possible to allow for larger lump sum distributions when the beneficiary reaches certain age plateaus. You can also give the trustee the latitude to make additional distributions on a discretionary basis.
Benefit Preservation
Most people in the United States get health insurance through their jobs, but many individuals with disabilities cannot work because of their challenges. Medi-Cal is the widely embraced health care insurance solution for Californians that are in this situation. Supplemental Security Income (SSI) is another government benefit that folks with disabilities rely on.
These are need-based programs that are only available to people with very limited monetary resources. An improvement in financial status can cause a loss of eligibility, and this can be a source of concern if you have someone with a disability on your inheritance list.
As a response, you could fund a supplemental needs trust. The trustee that you name in the document would be able to use assets in the trust to enhance the beneficiary’s quality of life in many ways. There would be no loss of benefits, and assets that remain in the trust after the death of the beneficiary would go to a successor beneficiary that you name in the agreement.
Medi-Cal Eligibility
Most seniors will eventually need long-term care, and about one third of them will ultimately reside in nursing homes. These facilities are very expensive, and unfortunately, Medicare does not pay for assisted living.
The Medi-Cal program does cover long-term custodial care, but as we have stated, it is a need-based program. In order to stay under the asset limit, you could convey resources into an income-only irrevocable Medi-Cal trust.
You would not be able to touch the principal or change the terms after the trust has been established. However, could accept distributions of earnings that are generated by the assets that are in the trust until you actually apply for Medi-Cal coverage.
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To set the wheels in motion, give us a call at 310-337-7696, and there is a contact form on this website you can use 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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