If you are beginning to devise your estate plan, you may assume that you should use a last will as a primary vehicle of asset transfer because you are not wealthy. Some people are under the impression that trusts are only useful for high net worth individuals.
Some people who have been very successful from a financial standpoint are exposed to the federal estate tax. To be exposed, your assets must exceed $5.43 million in 2015. Individuals who are in this position do in fact use trusts to gain estate tax efficiency.
However, there are trusts that can be useful for people who are not extraordinarily wealthy. Let’s look at the facts.
Revocable Living Trusts
The trusts that are commonly used by wealthy people to gain estate tax efficiency are irrevocable trusts. You cannot revoke or dissolve this type of trust, so you cannot change your mind and take back the assets. As a result, you are surrendering incidents of ownership, and assets in the trust would not be part of your taxable estate.
There is another type of trust called a revocable living trust. You can revoke this type of trust, so a revocable living trust would not be useful for people who are looking for estate tax efficiency.
However, the fact that you can revoke the trust can be viewed as a positive under some circumstances. You retain control of assets that you convey into this type of trust, so you can in fact access the resources if you need them.
If you use a last will rather than a revocable living trust as an asset transfer vehicle, it generally must be admitted to probate. This process is expensive and time-consuming as the court supervises the administration of the estate. The heirs do not receive their inheritances while the process is underway, and it can take close to a year, even if the case is uncomplicated.
When a revocable living trust has been created, the trustee that you name in the trust declaration can follow your instructions and distribute assets to the beneficiaries outside of probate after your passing.
Special Needs Trusts
There is another type of trust called a special needs trusts that can be useful for people who do not consider themselves to be rich. With this type of trust, you can set aside resources for the benefit of a loved one with special needs who is enrolled in need-based government benefit programs like Medicaid (called Medi-Cal in California) and SSI.
The benefit recipient would enjoy an improved quality of life, but benefit eligibility would not be forfeited.
Medicare does not pay for long term nursing home care, but Medi-Cal will. As a result, some people seek Medi-Cal eligibility late in their lives.
Since Medi-Cal is a need-based program, there are income and asset limits. You could convey assets into a Medi-Cal trust so that you have very little left in your own name when you apply for Medi-Cal coverage.
If you would like to learn more about how trusts can benefit people who are not extraordinarily wealthy, contact us through this page to set up a consultation: Roseville CA Estate Planning Attorneys.