Wills and trusts are legal documents that are widely used in the field of estate planning. There are different types of wills and trusts, and there are intricacies that many people do not understand. In an effort to provide clarity, we will take a look at some of the basics in this blog post.
Last Wills
First, let’s look at wills. There are different types of wills, but the will that most people have heard of is the last will or last will and testament. This document can be used to direct the transfer of your personally held property after you pass away. If you have minor children, you can also nominate a guardian if you create a last will.
Living Wills
A last will is used to facilitate monetary asset transfers, but a living will has nothing to do with financial matters. Doctors can use artificial measures to keep terminal patients alive for indefinite periods of times under some circumstances. If you were unable to communicate if you were in this type of condition, how would you want doctors to proceed?
The answer to this question is a personal one, and you can record your life support preferences in your living will. If you do so, doctors would be legally compelled to honor your wishes, and this heart wrenching decision would be taken out of the hands of your family.
Ethical Wills
There is a very meaningful type of will that stems from the Judaic tradition called an ethical will. You could use an ethical will to share moral and spiritual values that you have always lived by with the people that you will be leaving behind. This document can be quite instructive, especially during a difficult time when surviving family members are trying to come to grips with their loss.
Revocable Living Trusts
A revocable living trust is a type of trust that could be a good alternative to a last will. With a revocable living trust, you would continue to maintain control of the assets while you are living. You can act as the trustee, but you would name a successor trustee to take over the role after you are gone.
If you use a will, the inheritors would receive lump sum inheritances after the estate was probated by the court. This can be a double whammy of sorts, because the probate process is time-consuming, and the inheritors could squander their inheritances when they are finally distributed.
These pitfalls can be avoided if you use a living trust. The successor trustee could be instructed to distribute limited assets incrementally to prevent overspending, and the distributions would not be subject to the probate process.
This is a very brief, surface explanation of the benefits, but there are others. If you would like to obtain more detailed information about the value of living trusts, download our special report on the subject.
Wealth Preservation Trusts
People who have accumulated significant wealth can face estate tax exposure. The federal estate tax can be applied on the portion of an estate that exceeds $5.45 million. There are certain types of trusts that can be used to gain estate tax efficiency. These would be irrevocable rather than revocable trusts.
Special Needs Trusts
A special needs trust can be used to help out a loved one with a disability who is enrolled in government benefit programs that are only available to people who have very limited financial resources.
Medicaid and Supplemental Security Income eligibility can be lost if a benefit recipient was to come into money, because they are need-based programs. The situation can be addressed through the creation of a special needs trust.
Medicaid Planning
As we have stated above, the Medicaid program is only available to people with significant financial need. This program pays for long-term care for seniors, but Medicare will not help with nursing home or assisted living community costs.
Assets that have been conveyed into an irrevocable Medicaid trust would not be counted if the grantor of the trust was to apply for Medicaid to pay for long-term care.
Learn More About Wills and Trusts
Our firm is providing some great opportunities for people who would like to learn more about wills and trusts. We are going to be offering an ongoing series of seminars during the upcoming months, and these information sessions are free to attend.
Space is limited however, so we do ask that you identify the seminar that fits into your schedule and register in advance. You can visit our seminar schedule page to learn more.
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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