Although every estate plan should be crafted with the individual needs and goals of the creator in mind, there are some commonly used estate planning tools and strategies with which you should become familiar. Toward that end, the Hauppauge living trust attorneys at the Law Offices of Kobrick & Moccia explain why you might need a living trust in your estate plan.
What Is a Living Trust?
A living trust is one of two broad categories into which trusts are divided, with the other category being testamentary trusts. The primary difference between the two is that a living trust activates during the lifetime of the Settlor, or creator, and a testamentary trust activates at the time of the Settlor’s death through a provision in the Settlor’s Last Will and Testament. Fundamentally, however, both categories of trust are the same in that any type of trust creates a fiduciary legal arrangement that allows a third party, referred to as a Trustee, to hold assets on behalf of a beneficiary or beneficiaries. Living trusts can be further divided into revocable and irrevocable living trusts.
How Might a Living Trust Fit into Your Estate Plan?
Living trusts have evolved to the point where there is a specialized living trust for almost any estate planning purpose or goal. Some of the most common goals for which a living trust is used include:
- Probate avoidance — Probate can take a very long time to complete and can be very costly. As a result, your loved ones may have to wait months – even years – before they receive their inheritance. Moreover, that inheritance may be significantly less than you intended after the expenses of probating the estate are paid. Not surprisingly, probate avoidance is a popular estate planning goal and a living trust is a popular tool used to help further that goal. Assets held in a trust are non-probate assets, meaning they do not have to go through the probate process before being distributed, making a revocable living trust an excellent tool if probate avoidance is your goal.
- Incapacity Planning – if you were to become incapacitated tomorrow, who would take over control of your assets and finances? Without a plan, you can’t know the answer to that question with complete certainty. A revocable living trust helps you create that plan. It works by allowing you to name yourself as the Trustee of the trust, allowing you to control trust assets as long as you are able to do so. You name the person you wish to take over control of those assets as the successor Trustee. If you become incapacitated, control shifts to the successor Trustee automatically.
- Protecting a Minor Child’s Inheritance — your minor child cannot inherit directly from your estate. Shielding your child’s inheritance in a living trust ensures that those assets are protected until your child reaches the age of majority and can inherit directly. A living trust also allows you to stagger the distributions your child eventually receives so that he/she has time to learn how to handle the inheritance. No matter how mature your child is, handing an 18-year-old a large lump sum inheritance is rarely a good idea.
- Medicaid planning. For many seniors faced with the high cost of long-term care, Medicaid is their only hope for help covering those costs. Qualifying for Medicaid, however, can put a retirement nest egg in jeopardy if you failed to plan ahead because of the Medicaid asset limits used to determine eligibility. Creating an irrevocable living trust as part of a larger Medicaid planning component within your estate plan can protect those assets while ensuring your eligibility for Medicaid if you need it in the future.
- Asset protection. Whether you are concerned about creditors, divorce, taxes, or other threats to your assets, an irrevocable living trust can help. Assets transferred into an irrevocable living trust become trust assets. As such, you no longer have an ownership interest in those assets, meaning they cannot be reached by creditors or other threats. There are a number of specialized irrevocable living trusts that can help you protect your assets. Working closely with your estate planning attorney can help you decide which type of irrevocable living trust you need.
Contact Hauppauge Living Trust Attorneys
Please feel free to download our FREE estate planning worksheet. If you have additional questions or concerns regarding the use of a living trust in your estate plan, contact the Hauppauge living trust attorneys at the Law Offices of Kobrick & Moccia by calling 800-295-1917 to schedule your appointment.