Although a Last Will and Testament often serves as the foundation of an estate plan, trusts are a common addition to a comprehensive estate plan. To understand why trusts are so popular, it helps to know more about how a trust fits into an estate plan. Toward that end, a Murfreesboro estate planning attorney at Bennett | Michael | Hornsby explains six uses for a trust in your estate plan.
What Is a Trust?
A trust is a legal relationship that allows property to be held by one party for the benefit of another party or
parties. All trusts are broadly categorized as testamentary or living trusts. A testamentary trust is a trust that does not activate until the death of the Settlor and is typically activated by a provision in the Settlor’s Will. A living trust, on the other hand, activates as soon as all formalities of creation are in place. Living trusts are then further sub-divided into revocable and irrevocable living trusts.
Common Uses for a Trust
Not only are there several specialized trusts that are aimed at achieving narrow estate planning goals, but a trust agreement is an extremely flexible document, allowing you to tailor the terms to meet your needs. Some common uses of a trust within an estate plan include:
- Avoiding probate. Avoiding probate is frequently an important estate planning goal that can be furthered using a trust because assets held in a trust are not subject to probate. In practical terms, that means that the assets held by the trust can be distributed immediately after your death to the designated beneficiaries instead of getting held up in the costly and lengthy legal probate process.
- Planning for the possibility of incapacity. Every estate plan should include an incapacity planning component and many include a trust within that component. When you create a revocable living trust you appoint a Trustee and a successor Trustee. You can appoint yourself as the Trustee, and a spouse/family member/friend as the successor Trustee, allowing you to rely on the trust in the event of your incapacity. If you do become incapacitated, control over the trust assets will automatically shift to the designated successor Trustee without the need for court intervention.
- Protecting the inheritance of minor children. If you intend to gift assets to a minor, a revocable living trust is a much better way to make those gifts than a Last Will and Testament. The reason for this is simple — a minor cannot inherit directly from your estate, meaning someone will need to control assets gifted in a Will until the beneficiary reaches the age of majority. Gifting in a trust lets you decide who that person will be and allows you to structure how the assets can be used while the beneficiary is a minor. Once the beneficiary reaches adulthood, the trust can distribute the remaining assets immediately or over time.
- Providing for a child with special needs. If you are the parent of a child with special needs, estate planning takes on a heightened importance. While your child is a minor, obtaining assistance from state and federal programs such as Medicaid and Supplemental Security Income is crucial – and your child may continue to need that assistance as an adult. At that point, eligibility for state and federal assistance programs will be based, in part, on your adult child’s income and assets. Gifting assets directly to your child could cause him/her to lose eligibility for critical assistance. A special needs trust (SNT) can is an irrevocable living trust that supplements the care and assistance that an individual receives from other sources without jeopardizing eligibility.
- Long-term care (Medicaid) planning. Long-term care is expensive, which is why almost half of all seniors in nursing homes across the country depend on Medicaid to help defray the high cost of that care. Qualifying for Medicaid, however, can be problematic for a senior because eligibility is based, in part, on an applicant’s income and assets. If your non-exempt assets exceed the limit at the time you apply for Medicaid, you will be forced to “spend-down” those assets. A Medicaid trust can help. A Medicaid trust is an irrevocable trust that protects your non-exempt assets and allows you to qualify for Medicaid when you need it.
- Protecting assets. Protecting assets should be a goal in every estate plan given the numerous potential threats to your assets. By transferring assets into an irrevocable living trust, you remove those assets from your estate. If you no longer have any legal ownership interest in the assets because they are now owned by the trust, they cannot be lost to divorce, creditors, or any of the various other potential threats.
Contact a Murfreesboro Estate Planning Attorney
If you have additional questions or concerns regarding how a trust might fit into your estate plan, consult with an experienced Murfreesboro estate planning attorney at Bennett & Michael as soon as possible. Contact the team today by calling 615-898-1560 to schedule your appointment.