Your estate plan should be carefully crafted to suit your specific needs, and many approaches can be taken. The right trust will often provide the ideal solution.
Let’s look at some of the scenarios that can be addressed through the utilization of the right trust.
Preservation of Government Benefits
Many people with disabilities rely on Medi-Cal as a source of health insurance, and they receive income from the Supplemental Security Income program. These are need-based benefits, and they can be lost if the beneficiary were to come into a significant amount of money.
This is something to think about if you are going to be providing an inheritance to a loved one with a disability. To preserve the benefits, you can make this individual the beneficiary of a supplemental needs trust.
The assets in the trust would not belong to the beneficiary in a direct sense, so they would not cause a loss of eligibility. Under the guidelines, the trustee could use the assets to make a beneficiary more comfortable in many ways, and the benefits would remain intact.
Spendthrift Protection Planning
You may have concerns if you’re going to be leaving an inheritance to a family member who is not good with money. Under those circumstances, you could consider the utilization of a revocable living trust with a spendthrift provision.
While you are alive and competent, you would be the trustee, so you would have full control of the assets. When you draw up the trust declaration, you name a successor trustee to manage the trust after your death.
As soon as you are gone, the trust will become irrevocable. As a result, the beneficiary, and their creditors, would not be able to directly access the principal.
The trustee that you name would distribute assets to the beneficiary in whatever manner you dictate in the trust agreement. For instance, you could provide a certain amount each month until the beneficiary reaches a certain age.
Guiding Behavior
Let’s say that you have a grandchild or great-grandchild, and you want to guide them toward higher education. You could make your loved one the beneficiary of an incentive trust.
In the trust declaration, you could instruct the trustee to pay college tuition along with fees and living expenses. You can go on to provide additional incentives for graduate school, and there could be a congratulatory distribution after graduation.
The trust could then provide a dollar-for-dollar match of money that the beneficiary earns on the job. This is just one potential scenario that is rather common, but you can create an incentive trust to incentivize the beneficiary in other ways.
Parents Getting Remarried
If you are a parent and you’re getting remarried, you may want to protect your children’s inheritances. This can be done through the creation of a qualified terminable interest property (QTIP) trust.
When you implement this strategy, you fund the trust, and your spouse will be the initial beneficiary. Your children will be the successor beneficiaries of the trust.
Assuming you predecease your spouse, they will receive distributions of the trust’s earnings, and you can arrange for them to be able to use property that is owned by the trust. They would be well provided for, but they would have no ability to change the terms of the trust.
After they are gone, your children will assume ownership of the assets that remain in the qualified terminable interest property trust.
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