Let’s dive deep into a critical decision when it comes to securing your legacy: the choice between a trust and a simple will. For many, a will feels straightforward, but a trust may be the game changer you never realized you needed. Let’s explore three scenarios where a trust might be your best move. We’ll cover additional reasons why trusts often outshine wills in our next post, so stay tuned.
Remarriage
If you’re stepping into a second marriage, and especially if you’re older or financially successful, you may find yourself navigating the delicate balance between protecting your new spouse and ensuring your children from a previous marriage receive their rightful inheritance. This is a tricky spot, no doubt, but a carefully crafted plan can ensure everyone’s protected.
Sure, a premarital agreement is a sensible first step, but there’s a powerful estate planning tool that can take this strategy to the next level: the qualified terminable interest property (QTIP) trust. Here’s how it works: you fund the trust, name a trustee (that’s the person or entity overseeing it), and your spouse becomes the first beneficiary, with your children designated as the successors.
If you pass away before your spouse, they can receive income generated by the trust and enjoy use of its property, but—and this is critical—they can’t alter the terms or touch the principal. When your spouse passes, the remaining assets go directly to your children. It’s a beautifully balanced approach, providing for your spouse’s lifetime needs while ensuring your kids are taken care of after.
Special Needs Planning: A Lifelong Safety Net
Let’s pivot to another key area: special needs planning. When someone has a disability, their healthcare needs are often significant and costly, and many are unable to work, limiting their access to employer-provided health insurance. That’s where Medi-Cal, the state’s need-based health insurance program, comes into play, along with Supplemental Security Income (SSI). These programs are lifelines, but they come with strict asset limits.
Leaving a direct inheritance to a loved one with a disability could jeopardize their eligibility for these benefits. The solution? A supplemental needs trust (SNT). With this trust, assets are managed by a trustee, who can use them to enhance the beneficiary’s quality of life without affecting their benefit eligibility. Bonus: assets in the trust are shielded from Medi-Cal’s estate recovery efforts after the beneficiary’s death. This is peace of mind, knowing your loved one will be cared for—now and in the future.
Encouraging Responsibility: The Incentive Trust
We’ve all heard the stories—young heirs who inherit significant wealth only to lose their drive, purpose, and focus. If you’re worried about leaving a “silver spoon” legacy that could backfire, consider an incentive trust. You can tie distributions from the trust to certain achievements, like completing a college degree or maintaining employment.
Let’s say you set up a trust for your child with the stipulation that they must attend college. The trust could cover tuition and living expenses as long as they stay in school. After graduation, you could even create a matching program where the trust matches their earned income, dollar-for-dollar, encouraging them to stay motivated. Finally, you could release a larger sum when they hit a milestone age, providing them with a nest egg when they’re mature enough to manage it.
Join us for a FREE Seminar on Strategic Estate Planning on Saturday, October 5th
Attorney Collins will lead her last in person seminar of the 2024 year with an insightful session on safeguarding your family’s wealth through effective estate planning. This is truly your opportunity to seize and understand comprehensive estate planning and ensure your legacy is protected.
Don’t miss this chance to secure your future. We look forward to having you with us!
OCTBER 5TH SEMINAR LINK
If you’d like to reserve your seat at our end-of-year October 5th webinar, please use the link above or call our office at (310) 677-9787. Don’t miss this final opportunity of 2024.
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