There are certain myths that circulate when it comes to estate planning, and you can overlook viable solutions when you buy into these misconceptions. One of these notions is the idea that all trusts are only useful for those who are very wealthy.
Let’s look at the facts.
Estate Tax Efficiency and Asset Protection
People who have been very successful from a financial standpoint may be exposed to the federal estate tax. The federal estate tax has a $5.34 million exclusion in 2014. If the value of your estate does not exceed this amount, your estate is not subject to the federal estate tax.
There are certain types of trusts that are used by people who are faced with federal estate tax exposure. These would be irrevocable trusts.
When you convey assets into this type of trust, you surrender direct control of the assets. Because of this loss of control, they would no longer be part of your taxable estate.
There are also certain types of irrevocable trusts that are used to protect assets from judgments stemming from lawsuits.
Revocable Living Trusts
There is another type of trust called a revocable living trust. Things are entirely different with a revocable trust.
These trusts would not provide estate tax efficiency or asset protection, because you can in fact revoke the trust. As a result, revocable living trusts are not going to be a good choice for wealthy people who have these concerns.
If you are not especially wealthy, you can benefit from the creation of a revocable living trust.
When you use a last will to facilitate future asset transfers, the will must go through the process of probate. This process can take somewhere in the vicinity of a year in simple cases, and more complicated cases can take longer.
The heirs to the estate do not receive their inheritances while the process is underway. Plus, there are expenses that accumulate during the probate process.
You can arrange for asset distributions outside of probate if you create a revocable living trust. With this type of trust you can serve as the beneficiary and the trustee initially. When you create the trust agreement, you name successors to take over these roles after you pass away.
After your death, the successor trustee will follow your instructions and distribute assets to the successor beneficiaries. These distributions would not be subject to the process of probate.
Medicaid Trusts
Revocable living trusts can be of value to people who are not wealthy. However, there is also a type of irrevocable trust that can be useful for people of ordinary means.
Medicare will not pay for long-term care, but Medicaid will cover these costs. As result, many seniors seek Medicaid eligibility late in their lives.
To qualify for Medicaid, you must get your assets out of your own name. If you were to create an irrevocable Medicaid trust, the assets that have been conveyed into the trust would not be counted when Medicaid was determining your eligibility status.
Learn More About Trusts
If you would like to learn more about trusts, send us a message through this page to request a free consultation: Indianapolis Estate Planning Attorney.
Paul A. Kraft, Estate Planning Attorney
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.
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