Before we explain the value of planning ahead with trust administration in mind, we should provide some background information so that you understand why you may want to use a trust when you are planning your estate. There are numerous different types of trusts used in the field of estate planning, and they provide varied advantages. Let’s look at the facts.
Estate Tax Efficiency
The federal estate tax is a very big factor for people who have been able to accumulate a great deal of wealth. This tax carries a 40 percent maximum rate, so it can significantly reduce the financial legacy that you are leaving behind to your loved ones.
Fortunately, there is a relatively high estate tax credit or exclusion. In 2016, the exclusion is $5.45 million. There are annual inflation adjustments, so the figure that you see four 2017 may be a bit larger than the current $5.45 million number.
We should point out the fact that there is an unlimited marital deduction. You can leave unlimited assets to your spouse tax-free, but transfers to anyone else are potentially taxable. A caveat to this statement would be that the couple involved must be American citizens. The unlimited marital deduction is not allotted to citizens of other countries.
There are certain types of irrevocable trusts that are used to provide estate tax efficiency. These would include generation-skipping trusts, qualified personal residence trusts, grantor retained annuity trusts, charitable lead trusts, and charitable remainder trusts.
Special Needs Trusts
Many people with disabilities rely on government benefits like Medicaid and Supplemental Security Income. These are need-based program, so an improvement in financial status could cause a loss of eligibility.
Special needs trusts are used under these circumstances. If you establish and fund a special needs trust, you name a trustee to act as the trust administrator. Under program rules, the trustee would be empowered to use assets in the trust to make the beneficiary more comfortable in certain ways.
Trust resources could be used to provide education, dental care, recreation, vacations, transportation, computer equipment and other electronics, and other goods and services that the government benefits do not provide. As long as the trustee acts within the rules, eligibility for government benefits would not be impacted.
Many elders seek Medicaid eligibility late in their lives, because Medicare does not pay for long-term care. Since Medi-Cal is a need-based program, you cannot qualify if you have significant assets.
As a result, people often divest themselves of assets before they apply for Medi-Cal. This can be done through the creation of a Medi-Cal trust. The principal that is conveyed into the trust would not be counted if you were to apply for Medi-Cal to pay for long-term care. A beneficiary that you name in the trust declaration would assume ownership of these assets after you pass away. However, if you need income, you would be able to continue to receive income that is earned by the assets that you conveyed into the trust before you apply for Medi-Cal. That’s the good news, but there is also some bad news to pass along. If you do wind up qualifying for Medi-Cal to pay for long-term care, the income would go toward the cost of the care.
Revocable Living Trusts
If you use a last will to state your final wishes, the will must be admitted to probate after you die. This is a time-consuming process, and the heirs do not receive their inheritances until the court closes the estate.
When a revocable living trust has been created, the trustee can distribute assets to the beneficiaries outside of probate, so the distributions would take place in a much more timely manner. Plus, there can be spendthrift protections included. The trust would become irrevocable after your death, and because of this, there would be a layer of asset protection from the beneficiary’s creditors. You could also instruct the trustee to spread out distributions over an extended period of time.
Addressing Trust Administration Proactively
If you’re establishing any type of trust, the trustee will be the trust administrator. When you are working with an estate planning attorney to create the trust, you can arrange for your attorney to assist with the trust administration process after your passing. In this manner, your family would have an informed expert standing at the ready to provide the necessary legal guidance.
To Schedule a Free Consultation
If you are interested in the possibility of working with our firm after learning these facts, please select our “Workshops” tab to RSVP for a free estate planning workshop. At that workshop you will be offered a free one-hour consultation with an attorney: https://collinslawgroup.comseminars/
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