Do you need a trust? According to the 2023 Wills and Estate Planning Survey by Caring.com, only 34 percent of Americans have an estate plan. The primary reasons respondents gave for not participating in estate planning are:
- Procrastination
- Believing they need more assets
- Not knowing how to make an estate plan
An estate plan is a comprehensive set of legal documents and strategies that organizes assets for a person’s death or disability. Trusts are legal arrangements used in estate planning, alongside wills and advance directives.
Trusts as an Estate Planning Arrangement
A trust allows one person, known as the trustee, to manage funds and assets for one or multiple beneficiaries. They can be revocable or irrevocable.
Revocable trusts allow the grantor – the person creating and funding the trust – to change it during their lifetime. With an irrevocable trust, the grantor’s ability to make modifications is more restricted. Assets placed in this type of trust no longer belong to the grantor. This can help someone qualify for government benefits, reduce their taxable estate, and transfer wealth.
Compared to wills, trusts can be more complex. The value and utility of a trust will depend on your unique circumstances as well as the type of trust you use.
Avoiding Probate
A primary benefit of trusts is that they allow individuals to bypass probate, which can be time-consuming and costly for surviving loved ones. The process can also take months to years to conclude, burdening family members. Property placed in trust is typically excluded from a probated estate.
Transferring assets outside probate via a trust also maintains privacy. The public can access probate records. The contents of a will might become publicly accessible since wills go through probate. But trusts, which stay outside probate, typically remain confidential.
Asset Protection
Seniors can also use a type of irrevocable trust known as a Medicaid Asset Protection Trust (MAPT) to protect their assets and help qualify for Medicaid.
Individuals intending to use Medicaid to pay for long-term care may place into a MAPT certain assets that would otherwise disqualify them from Medicaid. Once Medicaid’s look-back period has elapsed, the assets transferred to the MAPT are protected. Since a MAPT is irrevocable, the grantor no longer directly controls the assets, but maintains certain rights, especially if a primary residence is placed in the MAPT. As the grantor can choose their beneficiaries, they can transfer and benefit from their wealth without first exhausting their assets to go on Medicaid.
Special Needs Trusts
One type of trust that can be an invaluable estate planning tool to benefit those with disabilities is a special needs trust (SNT). An SNT can preserve the beneficiary’s eligibility for Supplemental Security Income and Medicaid while providing for needs that public benefits do not cover. The SNT can pay for things like caregiving, outings, and entertainment.
Other Benefits of Trusts
In addition to avoiding probate, trusts can have tax benefits. By creating an irrevocable trust, individuals can lower the value of their taxable estate while transferring property to their loved ones.
You can also establish separate trusts for your heirs and beneficiaries. When you use a beneficiary trust, you can have more control over assets than if you gave them to the beneficiary directly. Those who wish to reward their loved ones for certain life events, like obtaining a college degree, can include such stipulations. Those with young children can set up a trust so that a child receives funds only upon attaining a certain age. If a child’s marriage ends in divorce, the trust may shelter the assets as separate property.
Consult With an Attorney
While not everyone needs to create a trust as part of a solid estate plan, they can benefit many people in transferring wealth and protecting assets. Contact the New York Elder Law and Estate Planning attorneys at Kurre Schneps LLP to learn more about how a trust can be a part of your comprehensive estate plan.
