If you ask a sampling of people to explain what estate planning is all about, most of them would say that you draw up a will. Of course, you can use a will to express your final wishes, but there are some good reasons why you may want to consider utilizing a trust instead. We will look at five of them in this post.
Special Needs Planning
You have to consider benefit eligibility if you are going to be leaving an inheritance to a loved one with special needs. Many people with disabilities rely on Medicaid as a source of health insurance, and they receive a modest stream of income from the Supplemental Security Income (SSI) program.
These are need-based benefits that are only available to people with sparse financial resources. An improvement in financial status could cause a loss of eligibility. This scenario would unfold if you leave a direct inheritance to a person that is in this position through the terms of a simple will.
As a response, you could establish a supplemental needs trust. The person that you want to help out would be the beneficiary, and you would name a trustee to act as the administrator.
Under the rules of these programs, the trustee would be able to use assets in the trust to make purchases that improve the life of the beneficiary. As long as everything is done correctly, there would be no change in the benefit eligibility status.
Many seniors seek Medicaid eligibility late in their lives because this program will pay for a stay in a nursing home. Medicare does not cover the custodial care that these facilities provide.
You cannot qualify for Medicaid if you have over $2000 in countable assets in your own name. A nursing home asset protection plan could be centered around the utilization of an income-only Medicaid trust.
As the name would indicate, you could continue to receive income that is generated by assets that have been conveyed into the trust until you apply for Medicaid, but the principal would not count.
A will would be admitted to probate after the death of the testator, and the court would provide supervision during the estate administration process. No inheritances are distributed during this lengthy procedure, and probate expenses reduce the value of the estate.
If you convey assets into a living trust, the trustee that you empower would be able to distribute assets to the beneficiaries outside of probate.
Estate Tax Efficiency
There is a federal estate tax in the United States that impacts high net worth individuals. The exclusion is $11.58 million, and any portion of an estate that exceeds this amount would be subject to the tax.
In Vermont, we have a state-level estate tax with an exclusion of $4.25 million. If you are exposed to either or both of these taxes, there are trusts that can be used to limit the damage.
An incentive trust can be used to prod people toward positive actions or guide them away from self-destructive behavior. For example, you can establish a trust that will provide distributions as long as the beneficiary stays in college, or the incentive can center around substance abuse rehabilitation.
These are just a couple of examples, but any incentive can be included as long as you do not ask the beneficiary to do something illegal.
Schedule a Consultation Today!
Action is required if you are going through life without an estate plan. As you can see, there are many different approaches that can be taken, and the right choice will depend upon the circumstances.
We can help you devise a custom crafted plan that provides for each person on your inheritance list in the ideal manner. If you are ready to get started, we can be reached by phone at 802-879-7133, and there is a contact form on this site you can use to send us a message.