If you are interested in learning about the estate planning benefits of trusts, you should be aware of the fact that there are different types of trusts, and they serve varying purposes. First, we will look at the value of revocable living trusts, because they are useful for a wide range of people.
Efficient Asset Transfers
People often assume that you can facilitate fast and efficient asset transfers if you use a last will, because it seems like a simple estate planning tool. In reality, things are not as simple as they may appear to be on the surface.
If you use a will, it must be admitted to probate after your passing. The heirs to the estate would not receive their inheritances while the probate process was underway, and it can take close to a year in simple and straightforward cases.
A revocable living trust can be used as an alternative. You maintain control of the assets in the trust while you are living, but after you die, the trustee can distribute assets to the beneficiaries outside of probate.
Estate Tax Benefits
There are revocable trusts, and there are also irrevocable trusts. Generally speaking, if you convey assets into an irrevocable trust, you would be removing the assets from your taxable estate, so they are used for estate tax efficiency purposes.
Asset transfers that exceed the amount of the estate tax exclusion are potentially subject to the estate tax. In 2014, the exclusion is $5.34 million, and it is going up to $5.43 million in 2015.
Irrevocable trusts are also used for asset protection purposes. Since you are surrendering incidents of ownership, assets that have been conveyed into an irrevocable asset protection trust would be protected from creditors and claimants.
You could use this type of trust to protect assets for your own purposes, but you could alternately use an irrevocable spendthrift trust to protect an heir who is not a good money manager. Assets in the trust would be protected from the beneficiary’s creditors.
Nursing home asset protection can also be accomplished through the creation of an irrevocable trust. Medicare does not pay for long-term care, so many people use Medi-Cal to pay for living assistance. To qualify for Medi-Cal, you must divest yourself of assets, because it is a need-based program.
Assets that have been conveyed into an irrevocable Medi-Cal trust would not be countable when evaluators were determining your eligibility status.
Learn More About Trusts
We have provided an overview in this post, but there is a lot more to learn. If you are interested in creating a trust, we would be glad to discuss your options with you.
We offer free consultations, and you can contact us through this page to schedule an appointment: Campbell CA Estate Planning Attorneys. We also regularly offer free workshops on Living Trust estate planning, Medi-Cal Planning, Special Needs planning and VA Planning. To view a list of upcoming seminars and workshops, follow this link: Free Workshops and Seminars.