There is an inherent challenge from an estate planning perspective with regard to projections for the future. How can you know how much money you will need for the rest of your life?
A lot of people do not consider the possibility of using a trust because they assume that you lose control of the assets yourself. Since the future is uncertain, they do not feel comfortable letting go of the resources.
This is totally understandable, but there is a step that you can take to give yourself the best of both worlds.
Revocable Living Trust
The revocable living trust is the most commonly used estate planning device other than a simple will. If you establish this type of trust, you would be called the grantor, and the grantor will typically act as the trustee.
Since you would be the trust administrator, you would have complete access to the assets that you transferred to the trust. You can use the resources or sell assets that are held by the trust, and you can add additional property to the trust after it has been established.
Your control is absolute, and you retain the right of revocation, so you can dissolve the trust and take back direct personal possession of the property.
You would name a successor trustee to administer the trust after your passing, and they could be given the power to act as the trustee in the event of your incapacity. This is a useful benefit because a significant percentage of elders experience cognitive impairment eventually.
The trustee would distribute assets to the beneficiaries that you name outside of probate. This is one of the major advantages that living trusts provide.
Probate Drawbacks
Why is probate avoidance beneficial? Probate will take about eight or nine months to run its course in most jurisdictions if there are no particular complications. People that are named in the will as inheritors have to wait it out before they can receive their bequests.
Expenses that are incurred include the executor’s payment, legal and accounting fees in many cases, court costs, and appraisal and liquidation expenses. All of this money going out the door is essentially coming out of the pockets of the rightful inheritors.
If you value your privacy, you will not welcome the probate process. Anyone that is interested can access the records to find out how you planned your estate.
Spendthrift Protections
A lot of people have concerns about the money management capabilities of their loved ones. When a will is used to transfer assets, the beneficiaries receive lump sums, and there are no ongoing safeguards.
It doesn’t have to be that way if you use a living trust as the centerpiece of your estate plan. You can dictate the terms of the distributions, so you do not have to provide lump sums all at once. The trust can actually remain active for an extended period of time.
Through the inclusion of a spendthrift clause, the trust would become irrevocable after your passing, and the beneficiaries would not have access to the assets. Their creditors would “step into their shoes,” so the assets would be protected.
Irrevocable Trusts
People get the idea that you lose control of assets in a trust because there are irrevocable trusts. If you establish this type of trust, you would not be able to revoke it in most cases, and you would not be able to act as the trustee.
An irrevocable trust can be useful if you want to get assets out of your own name for some reason. For example, many elders seek Medicaid eligibility late in their lives because Medicaid will pay for long-term care. Medicare does not cover a stay in a nursing home.
Since Medicaid is a need-based program, you cannot qualify if you have significant assets in your name. As a response, you could convey resources into an irrevocable, income only trust.
The principal would not count if you apply for Medicaid as long as you fund the trust at least five years before your application submission date. However, you would be able to accept distributions of the trust’s earnings before you apply for Medicaid.
Schedule a Consultation Today!
We are here to help if you are ready to work with a Glastonbury, CT estate planning lawyer to put a plan in place. You can send us a message to request a consultation appointment, and we can be reached by phone at 860-548-1000.
Mr. Nirenstein is licensed to practice before the courts of the State of Connecticut and the United States District Court. He is a member of the Connecticut and Hartford County Bar Associations, and the Estate and Probate, Elder Law, Business Law and Real Estate Sections of the Connecticut Bar Association.