There are numerous different specific types of trusts that are used in the field of estate planning. You have the opportunity to “use the right tool for the right job” as it were, because you have options.
From a very general perspective, there are two general classes of trust, and there are different variations that sit under these designations. These two classes would be irrevocable trusts, and revocable trusts.
First, let’s look at revocable living trusts.
Creating a Trust That Is Revocable
A person who is creating a trust is called the grantor of the trust in legal parlance. A trustee would be named in the trust agreement to administer the trust, and a beneficiary would also be named to receive monetary distributions from the trust.
People sometimes think that they are surrendering control of the resources when they convey assets into a revocable living trust. In fact, with this type of trust, you do not surrender control while you are living. You can act as the trustee at first, and you can also act as the beneficiary.
The grantor also retains the power of revocation. Once you establish the trust, it does not necessarily have to remain intact forever. You can revoke or dissolve the trust if you ever choose to do so.
However, you are probably never going to revoke the trust, because you created it to serve as an estate planning device. In the trust agreement, you name a successor trustee to handle the trust administration tasks after you are gone. Successor beneficiaries would also be named.
You can leave behind stipulations with regard to the way that you want the assets distributed to the beneficiaries after your passing. If you want to, you can include spendthrift protections.
Because you control the assets throughout your life, you are not surrendering incidents of ownership. As a result, this type of trust is not useful for certain purposes.
Many people seek Medi-Cal eligibility late in their lives, because Medi-Cal pays for long-term care. Medicare does not pay for living assistance, and it is very expensive, so this is a considerable gap.
You are probably aware of the fact that Medi-Cal is a program that is only available to people who are financially needy. There is a limit on countable assets of just $2000, so people often give assets to their loved ones so that they can qualify for Medi-Cal.
It is possible to give direct gifts to get assets out of your own name to qualify for Medi-Cal. However, the creation of a Medi-Cal trust would be another option.
A Medi-Cal trust would not be a revocable trust. As we have stated previously, with a revocable living trust, you are maintaining control of the assets, and you can actually dissolve the trust and take back the resources. Because you maintain control of the assets, they would be counted when Medi-Cal evaluators were determining your eligibility status.
You would use an irrevocable trust if you want to convey assets into a trust in an effort to qualify for Medi-Cal. With this type of trust, you are surrendering incidents of ownership, because you do not directly control the assets once you convey them into the trust, and you do not have the power of revocation. As a result, they would not be counted by Medi-Cal.
If you want to get the assets out of your own name, but you also want to benefit from the trust’s earnings, you could create an income only Medi-Cal trust. The principal would not be counted, but you could continue to receive income from the earnings of the trust.
Wealth Preservation Trusts
If you are transferring more than $5.45 million, the portion of your estate that exceeds this amount could be subject to the federal estate tax. To remove assets from your estate for tax purposes, you could convey them into an irrevocable wealth preservation trust of some kind.
Supplemental Needs Trusts
People with disabilities are often enrolled in need-based government programs like Medi-Cal and Supplemental Security Income. An improvement in financial status could cause a loss of eligibility.
To respond to this type of situation, you could convey assets into an irrevocable supplemental needs trust. The trustee would be able to use assets in the trust to improve the beneficiary’s quality of life, but benefit eligibility would not be disrupted.
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