They say that you should use the right tool for the right job, and there are many different tools that can be used when you are planning your estate. The optimal course of action will vary depending on the circumstances.
Trusts can be used to accomplish numerous different objectives, but all trusts are not created equal. There are revocable trusts, and there are irrevocable trusts. On the surface, the general difference is self-evident: you can revoke or rescind one type of trust, and you cannot revoke the other.
This is well and good, but what are the implications? Let’s look at the answer to this question.
Value of Irrevocable Trusts
We are going to speak generally when we talk about irrevocable trusts, because there are a number of different types of irrevocable trusts. These trusts are used when you want to divest yourself of direct personal ownership of assets for one reason or another.
With this type of trust, you are surrendering incidents of ownership. The assets belong to the trust. They no longer belong to you, and you cannot change your mind and revoke the trust.
Because you do in fact surrender incidents of ownership, you gain certain advantages. Creditors or claimants could not seek to attach assets that were held by the trust if there was a claim against you personally. For this reason, some types of irrevocable trusts are used for asset protection purposes.
There is also the matter of estate tax efficiency. If you are exposed to the federal estate tax, you could potentially convey assets into an irrevocable trust to gain estate tax efficiency. When you fund the trust, you are removing the assets from your estate for estate tax purposes.
If a beneficiary would be assuming ownership of assets that have been conveyed into the trust, there could be gift tax implications, but that is a subject for a different post.
Medi-Cal is a government health insurance program that will pay for long-term care. Medicare will not pay for a stay in a nursing home or assisted living community. Because Medi-Cal is a need-based program, there are income and asset limits.
You could potentially convey assets into a particular type of irrevocable trust prior to applying for Medi-Cal coverage. Because you are surrendering incidents of ownership, the assets would not count against you.
Revocable Living Trusts
With a revocable living trust you do not surrender control of the assets. You can revoke the trust, and you can act as the trustee and the beneficiary initially. Because of this ongoing control, these trusts are not useful for asset protection or Medi-Cal planning purposes.
However, they are very useful for people who want to facilitate asset transfers outside of the legal process of probate. Additionally, a properly prepared revocable living trust estate plan will also include Medi-Cal triggers which would allow your trustee/agent to apply for Medi-Cal benefits on your behalf in the event you become incapacitated.
If you would like to obtain more detailed information about trusts, send us a message through our contact page to request a free consultation. We also offer free Living Trust Seminars, Medi-Cal Planning Workshops, and Special Needs Trust Workshops on an ongoing basis. To view upcoming seminar dates and locations, follow this link: Free Seminars and Workshops