A lot of people think that estate planning boils down to one simple act: You draw up a will, and that’s the end of the story. In fact, a trust is a better choice under a variety of different circumstances. We will look at those reasons in the sections that follow.
Efficient Estate Administration
When a will is used to transfer assets, the executor will admit the document to probate. This is a legal process that will take months to run its course. Your beneficiaries will not receive their inheritance while the estate is going through probate.
There is also loss of privacy because the records are available to the general public. Plus, probate costs reduce the value of the estate before it is transferred to the heirs.
Probate is not a factor when you use a revocable living trust. The trustee you name would distribute assets to the beneficiaries according to your wishes outside of probate.
Nursing Home Asset Protection
Most senior citizens will need long-term care eventually and Medicare does not cover it. Nursing homes are very expensive, and professional in-home caregivers are also costly.
Medicaid will pay for long-term care if you qualify. It is a need-based program that requires you to have less than $2000 in countable assets in your name.
You can transfer assets into an irrevocable Medicaid trust to gain eligibility in the future. The principal would be out of your reach, but you would be able to accept distributions of the trust’s earnings while you are living independently.
Timing is the key to the successful execution of this strategy. There is a five-year look back period, so you have to transfer assets out of your name at least five years before you apply for Medicaid coverage.
Inheritance Protection
When you are getting remarried as a parent with children from a previous marriage, you may have estate planning challenge on your hands. You want to provide for your new spouse appropriately, but you also want to protect the inheritances that you would like to leave to your children.
A qualified terminable interest property trust (QTIP) can provide a solution under these circumstances. You fund the trust, and your spouse would be the first beneficiary. Your children would be the successor beneficiaries of the trust.
If you die before your spouse passes, your designated trustee would distribute the earnings that are generated by assets in the trust to your spouse for the rest of their life. They can also use property that is technically owned by the trust.
They would be comfortable, but they would not be able to change the terms of the trust. After their death, your children would inherit the assets that remain in the QTIP.
Spendthrift Protections
Let’s say one of your children is not very good with money. They have come to you on multiple occasions over the years looking for financial help. You are afraid they will spend their inheritance too quickly and have nowhere to turn when times get hard.
If you leave them a lump sum inheritance in a will, there would be no protections going forward. However, the situation is different if you make them the beneficiary of a living trust.
You would act as the trustee while you are living. You can leave instructions for the trustee that will succeed you after your passing. Your trust will become irrevocable upon your passing, and as a result, the assets will be protected from the beneficiary’s creditors.
When you are creating the trust agreement, you can instruct the trustee to distribute a certain amount each month or set up some other incremental payout arrangement. The trust could potentially stay active for years if you want to provide ongoing income.
Take Action Today!
Today is the day to end the procrastination. If you do not have a plan in place call 405-843-6100 TODAY to schedule a consultation at our Oklahoma City estate planning office. Or use the contact form on this site to send us a message.
After helping his own family deal with a lengthy probate and the IRS following his father’s untimely death in a farm accident, Larry Parman made a decision to help families create effective estate plans designed to reduce taxes, minimize legal interference with the transfer of assets to one’s heirs, and protect his clients’ assets from predators and creditors.