PLANNING WITH TRUSTS
As part of our comprehensive Life & Estate Planning services, we assist clients with setting up, funding and/or administering Trusts. Depending on your specific circumstances, we can design a customized Trust to protect your assets and help you achieve the following goals:
Ensure that Your Home & Financial Assets are Fully Protected
Establish Your (or a Loved One's) Eligibility for Medicaid Benefits
Avoid the Costs, Delays & Hassles of Probate
Control how Your Assets are Distributed After You Pass Away
Reduce or Eliminate the Imposition of Taxes on Your Estate
Provide for a Loved One with Special Needs
Protect a Child's Inheritance Until He/She Becomes Old Enough to Manage Assets
Protect a Wasteful Beneficiary from Squandering His/Her Inheritance
Make Gifts to Your Favorite Charities
Put a Plan in Place to Provide for Your Future Care & Support
TRUST AGREEMENTS PROVIDE SEVERAL SIGNIFICANT PLANNING BENEFITS
There are many advantages to incorporating a Trust as part of your Life & Estate Plan, including:
Asset Protection. An Asset Protection Trust is an excellent planning tool for protecting valuable assets such as your home and financial accounts. Any assets placed into the Trust will be fully protected from creditors (e.g., Medicaid, etc.) and other potential threats (e.g., lawsuits, court judgments, etc.). An Asset Protection Trust may be tailored for various specific purposes such as qualifying for Medicaid benefits, protecting assets from being squandered, and avoiding costly estate and capital gains taxes, etc.
Establish Medicaid Eligibility. A properly constructed Medicaid Trust may be utilized to shelter and protect your home and financial assets from Medicaid while, at the same time, helping you to establish your eligibility for Medicaid benefits at the earliest possible date.
Avoid Probate. Assets passing through your Will must first go through the time-consuming and costly probate process before being distributed to your beneficiaries. In contrast, assets in a Trust will pass directly to your beneficiaries and, as a result, will avoid the court costs, delays and hassles commonly associated with the probate process. In addition, whereas probate is a matter of public record, assets passing through a Trust remain private - thus ensuring the full privacy of your estate and family details.
Control Over Your Wealth. A transfer of assets, either during your lifetime or through your Will, becomes the property of your beneficiary to do with as he/she sees fit. However, a Trust allows you to maintain control over when and how those gifted assets may be used. For example, you may set up the Trust so that the assets (and any income generated by those assets) remain available to you during your lifetime, while designating the beneficiaries to whom the assets will pass following your death.
Minimize Property & Estate Taxes. Trusts provide many substantial tax planning benefits, including the preservation of the step-up in basis when transferring property, the reduction or elimination of capital gains tax, the preservation of property tax exemptions, and the reduction or elimination of estate taxes.
Special Needs Planning. Transferring assets directly to a loved one with special needs could jeopardize your loved one's eligibility for much-needed government assistance programs such as Medicaid and SSI. However, a special type of Trust called a "Special Needs Trust" would allow you to provide supplemental assistance to your loved one without putting those government benefits at risk.
Protection of a Minor's Inheritance. The laws do not allow minor children to hold assets or inherit property directly from your estate. However, a Trust could be set up to hold and protect a child's inheritance until he/she becomes old enough to receive and manage the assets.
Protection Against Incapacity. A Revocable Trust could also be used for incapacity planning. You could name yourself as the Trustee and designate a person of your choosing (i.e., a trusted relative or person of your choosing) to serve as the Successor Trustee to manage your assets in the event you subsequently become incapacitated. Furthermore, you could also include specific instructions in the Trust for how you want the Trust assets to be utilized to provide for your care and support.
THE FOUR BASIC TYPES OF TRUST AGREEMENTS
Trusts, generally, fall into the following four categories:
A Testamentary Trust is set up through your Last Will & Testament and takes effect only after you die. Your Will may contain more than one Testamentary Trust and be funded with all or any portion of your estate.
In contrast to a Testamentary Trust, a Living Trust becomes effective during your lifetime, as soon as the Trust is set up. Depending on your objectives, you may choose to fund the Living Trust with all or any portion of your assets. Living Trusts may be further divided into the categories of "Revocable Trusts" and "Irrevocable Trusts."
A Revocable Trust is what most people typically think of when they hear the word "Trust." The Revocable Trust provides a great deal of flexibility as it allows you to control your assets and, should your life situation ever change (such as divorce, the death of a spouse or child, re-marriage, etc.), you could revoke or amend the Trust at any time. You may fund the Trust with any assets of your choosing and name the beneficiaries to receive the Trust assets upon your death. Upon the death of the Trust creator, the Revocable Trust becomes irrevocable.
Unlike a Revocable Trust, an Irrevocable Trust cannot readily be revoked or amended. Once assets are placed into an Irrevocable Trust, you essentially cede control over those assets to your Trustee (i.e., a trusted relative/person of your choosing) who is responsible for managing the Trust assets on your behalf (i.e., for your and/or your loved ones' benefit, etc.). Because of the way the Irrevocable Trust is structured, it provides the ideal planning tool for protecting assets from Medicaid and other potential creditors, as well as minimizing estate taxes.
THERE ARE MANY TYPES OF SPECIALIZED TRUSTS TO HELP ACCOMPLISH YOUR PLANNING GOALS
Beyond the four general Trust categories, there are several specific types of Trusts that are available to help you accomplish a broad range of planning objectives. Below is a brief introduction to some of the Trust planning strategies that we could put to work on your behalf:
ASSET PROTECTION TRUSTS
An Asset Protection Trust is specifically designed to protect your home and/or financial assets from any potential threats (i.e., Medicaid, creditors, lawsuits, etc.). The Trust also provides significant tax benefits including the elimination or reduction of the estate tax; as well as the valuable "step-up" in the cost basis of the Trust assets, thereby eliminating or minimizing any capital gains tax on those assets. Upon death, the Trust assets will readily pass to your designated beneficiaries without having to go through the time-consuming probate process.
CREDIT SHELTER TRUSTS
A Credit Shelter Trust is designed to allow a married couple to maximize the use of the applicable estate tax exemption(s) and minimize the payment of state and federal estate taxes. Upon the death of the first spouse, the amount that would be taxable (based on the tax laws at the time of death) is placed into the Trust. The surviving spouse may receive income from the Trust during the duration of his/her lifetime and, upon the surviving spouse's death, the Trust principal will pass on to the children (or other designated beneficiaries) tax-free.
Like the Credit Shelter Trust, the Disclaimer Trust enables a married couple to minimize estate taxes. However, the Disclaimer Trust provides the surviving spouse with the flexibility to ascertain, at the time of the first spouse’s death, what amount of the assets, if any, should fund the Disclaimer Trust. As long as the notice of disclaimer is timely exercised by the Executor of the first spouse’s estate, the Disclaimer Trust would enable the surviving spouse to minimize, or completely eliminate, any estate tax liability.
MEDICAID QUALIFYING TRUSTS
A Medicaid Trust enables a Medicaid applicant to protect his/her hard-earned assets and become eligible to receive Medicaid benefits, whether for home care Medicaid or nursing home Medicaid. There are many complex rules and regulations governing the set-up and funding of a Medicaid Trust, so it's important to consult with a qualified attorney in this regard. Click here to learn more about Long-Term Care & Medicaid Planning.
A Pooled Trust enables a home care Medicaid applicant to preserve his/her surplus income (i.e., income over the monthly allowance). The funds in the Pooled Trust may be utilized to pay for the Medicaid applicant's living expenses such as food, clothing, monthly rent or mortgage, utilities, taxes, home repairs (basically, all living expenses except medical premiums and medical bills). In sum, a properly prepared Pooled Trust would allow the home care Medicaid recipient to: (1) preserve his/her “surplus” income, (2) pay his/her living expenses, and (3) maintain his/her accustomed standard of living while still qualifying for home care Medicaid benefits.
SPECIAL NEEDS TRUSTS (SNTs)
A Special Needs Trust (also known as a "Supplemental Needs Trust") is designed to provide supplemental support and services for disabled individuals without disrupting their receipt of government benefits such as SSI or Medicaid. The Special Needs Trust could be used to purchase items and/or services that are not covered by the government benefits, such as home modifications, clothing and personal items, entertainment and recreational expenses, special medical equipment, etc. Click here to learn more about Special Needs Planning.
QUALIFIED TERMINABLE INTEREST TRUSTS (QTIPs)
Upon remarriage, issues could arise if there are children from a previous marriage. On the one hand, you likely will want to make sure that your new spouse is provided for after your death. On the other hand, you probably would wish to ensure that your children from your previous marriage are provided for as well. As much as you may love and trust your new spouse, if you leave your estate directly to your spouse, it's possible that he or she could deplete all the assets, re-marry (and decide to leave everything to the new spouse), or have a falling-out with your children; meaning that, in the end, your children could end up with nothing.
A Qualified Terminable Interest Trust provides the ideal solution for such a scenario. The QTIP Trust would hold your assets and provide your spouse with an income stream for life. After your spouse's death, the assets in the Trust would then pass to your children. In sum, a QTIP Trust is an excellent way to provide for a second spouse while still protecting and preserving assets for your children (or any other designated beneficiaries).
TRUSTS FOR MINORS
If you would like to leave an inheritance to minor children or grandchildren, you can create a Trust in your Will which will serve to protect and provide for your minor children or grandchildren by controlling how and when distributions should be made. You could direct that the assets be distributed in specific amounts and/or at specific intervals or ages of the beneficiaries.
If you wish to leave assets to a certain beneficiary, but are concerned that the beneficiary is not good at managing finances, has an addiction that could cause him/her to squander the money, might be easily deceived or defrauded, or could easily fall into debt with creditors, a Spendthrift Trust might be the ideal solution. With a Spendthrift Trust, you can make special provisions for the beneficiary and have peace of mind knowing that the Trust assets will not be wasted through misuse, drugs, gambling, a misguided relationship, or excessive debt.
CHARITABLE REMAINDER TRUSTS (CRTs)
If you have a special charity or nonprofit organization that is near and dear to your heart, you can contribute to that charity by directing assets to a Charitable Remainder Trust. A CRT would enable you to receive an income stream during your lifetime and, upon your death, any remaining trust assets will go to support the charity, while providing you and your estate with beneficial tax deductions.
LIFE INSURANCE TRUSTS
Generally, life insurance beneficiaries will not pay income tax on the death benefit(s) received from life insurance policies. However, the full value of the life insurance proceeds will be included in your estate for the purpose of calculating estate taxes if you owned the policies at the time of your death. This could result in your estate owing tens or hundreds of thousands of dollars in estate taxes.
A Life Insurance Trust could save your estate from paying this significant estate tax because the Trust would hold the insurance policies on your behalf. Since the Trust, rather than you, would be considered the owner of the insurance policies, the value of the policies will not be included in your estate for estate tax purposes.
THE LAW OFFICES OF MICHAEL J. AMOROSO - PROTECTING YOUR ASSETS NOW & FOR THE FUTURE
Determining whether a Trust is right for you could be a complex and confusing process. We have the knowledge and experience to help you determine whether a Trust makes sense for your particular situation; and, if so, which type of Trust would be best for accomplishing your planning goals.
Trusts are excellent tools for protecting one's hard-earned assets, avoiding probate and providing for the needs of loved ones. Call us today to discuss your particular goals and wishes, and learn whether it would be beneficial to include a Trust as part of your Life & Estate Plan.