A lot of people think that an estate plan is limited in scope. You cut up slices of a pie via the terms of a will, and the rest will take care of itself after you pass away. The idea is that there is a generic way to proceed, and that’s the end of the story unless you are a billionaire.
In actuality, this is a very shortsighted perspective. There are different ways to proceed when you plan your estate, and the ideal approach will depend on the circumstances. Let’s look at some of the scenarios that can exist and potential responses that could be part of a personalized estate plan.
Spendthrift Heir
Let’s say that you have a son who has always been a very poor money manager. He has come to you in dire need of financial support on multiple occasions, and he is your only child.
You will be leaving him a sizable inheritance, but you’re very concerned about his spendthrift tendencies and pattern of poor decision-making. If you leave him a bequest in a simple will, he will receive a lump sum with no safeguards going forward.
An alternative would be the utilization of a revocable living trust with a spendthrift provision. When you establish the trust, you will be the trustee during your life, and you name a successor trustee to assume the role after your passing.
When you are gone, the trust will become irrevocable. The beneficiary, your son, would not have direct access to the assets in the trust. His creditors would “step into his shoes” in a legal sense, and they would be in the same position, unable to reach the funds.
In the trust declaration, you could stipulate an incremental distribution arrangement. For example, you can instruct the trustee to distribute a certain amount each month. Many people will allow for larger distributions as the beneficiary grows older.
Incentivizing Fruitful Behavior
An incentive trust can be used to guide a loved one toward certain actions. A common utilization would be an incentive toward higher education. The trust could pay tuition and all living expenses while the beneficiary is a student in good standing at a college or university.
There can be added incentives for graduate school. Some people will instill a work ethic by providing a dollar-for-dollar match of money earned on the job after the beneficiary graduates.
Another scenario is an incentive trust to guide the beneficiary away from self-destructive behavior like drug abuse, alcohol abuse, or excessive gambling.
Nursing Home Asset Protection
The majority of seniors will incur long-term care expenses eventually, and Medicare does not cover custodial care. You are looking at a $200,000 annual expense in the Westport, Connecticut area if you ultimately spend time in a nursing home.
With this in mind, your estate plan could include a nursing home asset protection strategy. This will typically involve the utilization of an irrevocable, income-only Medicaid trust.
To implement this approach, you fund the trust with appreciable assets. As soon as you complete this action, the resources will not count if you apply for Medicaid at least five years after you establish and fund the trust.
In the meantime, you can continue to receive distributions of income generated by the assets in the trust, but you will not be able to reach the principal.
Take Action Today!
These are just three of the different scenarios that can be addressed through the utilization of targeted estate planning solutions. When you choose our firm, we will learn about your situation and your objectives and provide recommendations based on your unique circumstances.
If you’re ready to get started, you can call us at 860-548-1000 to schedule a consultation at our Glastonbury or Westport, CT estate planning offices. You can alternately use our contact form to reach out if you would rather send us a message.
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.