Let’s look at some of the reasons why you may want to use an irrevocable trust.
Estate Tax Efficiency
The federal estate tax can have a major impact if you have been particularly successful from a financial standpoint. You can transfer unlimited assets to your spouse tax-free as long as your spouse is an American citizen, but transfers to others are potentially taxable.
There is a $5.43 million estate tax exclusion during the current calendar year. This is the amount that you could transfer to anyone other than your spouse tax-free. Transfers that exceed this amount would potentially be subject to taxation.
There are certain types of irrevocable trusts that can be used for estate tax efficiency purposes. These would include grantor retained annuity trusts, generation-skipping trusts, charitable lead trusts and qualified personal residence trusts.
Generally speaking, when you convey assets into an irrevocable trust, you are removing the assets from your estate for tax purposes.
The majority of senior citizens are going to need help with their activities of daily living at some point in time. Medicare does not pay for nursing home care, but Medi-Cal will assist with these costs.
Since Medi-Cal is a need-based program, there is a limit on countable assets. At the present time, this limit is $2000 for an individual.
To get assets out of your own name so you can qualify for Medi-Cal to pay for long-term care, you could create and fund an irrevocable Medi-Cal trust. There are different types of trusts for different assets and purposes.
If you want to continue to receive income from the earnings of the trust, you could create an income only Medi-Cal trust. The principal would not count if you were to apply for Medi-Cal, but you could receive distributions of the trust’s earnings while you are living independently.
Special Needs Planning
If you want to help a loved one who has a disability, you have to be concerned about government benefit eligibility. As we have stated previously, Medi-Cal is a need-based program, and many people with special needs rely on this program for health insurance. An improvement in financial status could cause a loss of eligibility.
You could convey assets into a special needs trust if you want to improve a loved one’s quality of life without impacting ongoing Medi-Cal eligibility.
Learn More About Irrevocable Trusts
In this blog post we have looked at a few of the different reasons why you may want to utilize an irrevocable trust, but there are others. If you would like to discuss your unique situation with an experienced and qualified attorney, we can help.
To set an appointment through this page, click on the following link: Sacramento CA Estate Planning Attorneys.
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