Basic estate planning has many benefits but when you combine a Last Will and Testament with the benefits of trust planning you’ll find a multitude of benefits for your estate and your beneficiaries and heirs.
Creditors and Bankruptcy
Medicare and Government Benefits
Underage or Incompetent Beneficiaries
Assets Outside NC
1. Creditors and Bankruptcy
Normally, if your heirs were to inherit property while they had judgment creditors, those creditors could take your inheritance at death. The same thing holds true for bankruptcy. Moreover, that ability to take your inheritance is not just at death but continues. While your heirs may be capable and financially sound now, that may not always be the case.
If your son gets into a car wreck and injures or kills someone, if he also has extensive medical bills or his own, or is subject to identity fraud, he may end up with judgment creditors. By passing his inheritance through a trust, those creditors generally cannot access the inheritance, but the trustee can continue to spend money on behalf of and for the benefit of the son.
2. Medicaid and Government Benefits
While we certainly hope that all your heirs skate through life without any major medical issues, statistics indicate that about 25% of the U.S. population is receiving Medicaid. With soaring medical costs, it doesn’t take much to find oneself unable to pay for necessary medical care. But Medicaid is a needs-based government benefit.
That means that to get Medicaid, you cannot have sufficient resources available to cover your medical expenses. That happens a lot with long-term care needs. The first question is about qualification for Medicaid. Normally, inheritance is a “countable asset” for Medicaid. That means that if a person has inherited money, they will be required to spend those assets before they can receive Medicaid.
However, if the inheritance is in a properly written Trust, the inheritance is no longer a countable asset. The child can then receive Medicaid to pay for medical expenses and cost of care while also having assets available that the Trustee can use to pay for things that Medicaid is otherwise not providing. The next question with Medicaid is claw-back liens. If someone properly qualifies for Medicaid and then later inherits money, Medicaid can then take that inheritance to repay themselves for anything that was spent while the person was on Medicaid. Again, a Trust can prevent this from happening.
Remember that the Trust can continue for generations. While your kids may be unlikely to need Medicaid right now, that could easily change in the future. Medicare is very different from Medicaid. Medicare is available to everyone over a certain age and provides coverage for short-term hospital visits. It does not cover long-term care. Alzheimer’s, Dementia, and other cognitive issues that arise with age often require a high level of care that Medicare does not cover. By placing inheritance in a Trust, you’ve created a safety net for your kids, grandkids, and potentially others down the line.
3. Underage or Incompetent Beneficiaries
Creditors, bankruptcy, and government benefits are important to guard against, but Trusts also protect against other potential issues. While we all hope our children live long past us, sometimes that isn’t the case. If one of your children were to pass at the same time or before you or were to pass after you, but before their children were over 18 years old, we want a system in place to manage and control the inheritance until that grandchild is old enough to do so for themselves.
A Trust allows the grantor to set specific provisions to safeguard the inheritance for underage beneficiaries. We can also set specific requirements about how those assets can be used before the underage person reaches adulthood. We can even define at what age adulthood starts, provide percentages based on age or time after death, or limit the use of the assets for particular things like education, health, and housing.
Occasionally, the heir himself may be the biggest concern. Your children may have issues that lead you to believe that inheriting money would cause more harm than good. In those situations, we can set out specific rules that prohibit a Trustee from giving the child money directly or limit amounts with allowances and percentages. Or maybe your son or daughter is perfectly fine now, but things down the road could change that.
Normally if someone who has been deemed incompetent inherits money, those funds are governed and overseen by the court system. Again, the court charges money based on the assets of the incompetent individual, and lawyers are often needed to navigate the process, leading to large chunks of your inheritance going to people and entities that you have no desire to support.
4. Split Families
In cases of split families where one spouse has children from a prior relationship, we almost always want to utilize trust planning. A Trust can set aside money to be used by the surviving spouse only if needed and then ensure that when the surviving spouse passes away that the assets go to the right people. This is not something we can do with a Will. Because a Will can be changed at any time, we need to utilize trust planning to ensure that our assets go to our children and not the children of the surviving spouse. The same holds true for subsequent marriages.
Normally, if a surviving spouse gets remarried, the new spouse potentially has a right to some of those assets. In fact, there is nothing that prevents a surviving spouse from leaving everything to the new spouse and nothing to the children of the deceased spouse. That is unless we use basic trust planning.
5. Assets Outside NC
Another situation that often leads to trust planning is holding assets in multiple states. The only thing worse than a complicated and time-consuming probate matter is having to do the same things in multiple states in order to pass property. If you own a vacation home or other assets outside of NC, we likely want to discuss whether it will save a lot of money and effort by having everything in a revocable living trust.
Because a Trust is just a contract, we can usually do just about anything we want and structure the Trust to meet you and your family’s needs. This includes not only the needs that we already know about but also unforeseen needs that may arise in the future. Trust planning gives us the flexibility to handle these situations but also the ability to restrict what happens to the assets. Even though the Trust can be customized to fit your needs, our office does not charge by the hour for revocable living trusts. We will meet with you as many times as we need to be sure that the estate plan, we help you create is perfectly suited to meet your needs and those of your family.