More on Trusts
Over the past several years, there has been much publicity and advertising concerning the advantages of Living Trusts. Many high-pressure sales organizations or “Trust Mills”, as they are referred to have proclaimed the advisability and necessity of Living Trusts without addressing some basic underlying questions.
First: What is a Trust?
A Trust is a legal entity created by a person or persons who are referred to as “Grantors”, “Trustors”, “Settlors”, or “Creators.” All of these terms mean the same thing and this person is the one who puts his or her assets into the Trust. A Trustee must be appointed to be the one legally responsible for trust assets. These assets may also be referred to as Trust corpus or trust principal.
Second: What is your objective in establishing a Living Trust?
The objective of a Trust may also determine the exact type of trust that is advisable. In this regard there are two major distinctions in Living Trusts that should be pointed out.
a. The first type of Living Trust is a Revocable Living Trust. This is a Trust in which your assets are transferred into the Trust, however, you can change your mind and have all assets transferred out of the Trust and back into your own name at any time.
b. The second type of Trust is an Irrevocable Living Trust. This is a Trust in which once the Trust is established and assets are transferred into the Trust you cannot change your mind and have the assets returned. However, even with an Irrevocable Trust, so long as the grantors and the beneficiaries agree, the Trust can be collapsed and revoked. This distinction is most important with regard to planning for the cost of nursing home care and Medicaid qualification, which will be discussed in detail.
There are several valid objectives for the creation and funding of a Living Trust.
- Asset Management: In the event that an individual has such assets that it would be advisable for a trustee or a professional asset manager to take control over financial decisions and management of stocks, bonds and other assets, then a trust is a valuable tool. A trust would enable such a professional to make decisions and transfers with respect to your assets, and pay to you a specified income generated by such assets.
- Avoidance of Probate: Clearly one of the advantages of creating a Living Trust whether revocable or irrevocable is the avoidance of the probate process. In other states the probate process may be very time consuming and expensive, often taking several years. In the State of New York this process is not nearly as long or complicated. In most of the counties in the Capital District area a will can be probated within one or perhaps two weeks, and in some counties this period can be as short as one or two days.
- Clearly there is some expense for the probate process, including attorney’s fees and court costs. The question to be answered is whether the cost and complication of the establishment of a Living Trust out weighs the cost of the probate process.
- Continuity of Management in the event of disability: If one’s assets are placed into a Living Trust and that individual were to suffer from a disability, the Trustee could continue with the management of the individual’s finances in spite of the disability. This advantage is somewhat minimal since a durable power of attorney can accomplish the same purpose and in any event there are always some assets that would not be transferred into the trust, such as proceeds from pension, social security, etc.
- Medicaid Planning (Irrevocable Trusts Only): A major advantage and a prime reason for the establishment of a Living Trust is for protection of one’s assets against the potentially devastating costs of nursing home care. By transferring one’s assets into an Irrevocable Living Trust these assets may be protected against the high cost of nursing home care and allow one to qualify for Medicaid benefits.
- Providing for a Disabled Loved One: A Supplemental Needs Trust, Special Needs Trust, or SNT, is a trust that is established for the benefit of a disabled individual. The purpose of a SNT is to supplement government benefits or assistance which the disabled individual, also known as the beneficiary, may otherwise be eligible for or which the beneficiary may already be receiving. If you or a loved one are a disabled individual, a Supplemental Needs Trust may play an imperative role in your estate planning needs.
Contact Fowler, Doyle, Spiess & Florsch PLLC to discuss your objectives individually with a qualified Elder Law Attorney so as to make an informed and intelligent decision as to whether a Living Trust might be appropriate for you and your family.