They are under the impression that a last will is the right choice for people who are not multimillionaires. The idea is that a trust is the other option, but it would only be useful for very wealthy people.
In fact, this is a very shortsighted point of view. There are numerous different types of trusts. It is true that there are trusts that are used by high net worth individuals who are exposed to the federal estate tax. During the 2016 calendar year, this tax can be applied on asset transfers that exceed $5.45 million.
However, there are trusts that can be used for other purposes. Let’s look at a few of them.
Special Needs Planning
People with disabilities often rely on need-based government benefit programs like Medi-Cal and Supplemental Security Income. Since these programs are only available to people who can prove that they have a significant level of financial need, there is a $2000 limit on countable assets.
An improvement in financial status can cause a loss of eligibility. To address this type of situation, you could establish a special needs trust. Assets in the trust could be used to help out the beneficiary in certain ways, but benefit eligibility would not be impacted.
Spendthrift Protections and Probate Avoidance
If you were to use a last will as your vehicle of asset transfer, it would be admitted to probate after your passing. This is a time-consuming and expensive legal process. After the estate was probated by the court, the heirs to the estate would receive lump sum inheritances.
To facilitate more timely asset transfers, you could establish a revocable living trust. The trustee that you name in the trust agreement would be empowered to distribute assets to the beneficiaries outside of probate.
Plus, you could include spendthrift protections. You could instruct the trustee to distribute limited assets over an extended period of time, and the trustee would manage the assets in the trust.
Medi-Cal is very important to many senior citizens, because Medicare does not pay for custodial long-term care. The Medi-Cal program will cover custodial care. To keep your assets within the limit as you attempt to obtain Medi-Cal eligibility, you could convey assets into one or more irrevocable Medi-Cal trusts.
In some trusts, you would not be able to touch the assets that comprise the principal, but you would be able to receive income that is earned by the trust before you apply for Medi-Cal.
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