So what exactly is a trust? Many people think that a trust is a very complicated document, and it can be depending on the complexity of your situation. There are different types of trusts that you can use. There are trusts that you can change and trusts that you can’t change. The trusts that you can change throughout your lifetime are called “revocable” or “living” trusts. The trusts that you can’t change are called “irrevocable” trusts.
There are many different reasons why you would want to have a trust. If you have a special needs child, you might want to have a trust so you could leave inheritances to that special needs child. You might want to have a trust for your spouse so that they receive a certain amount of assets or inheritance when you pass.
You might want to have a trust for a child who has supplemental needs or creditor issues. Whatever the issues may be, they can usually be solved with one of these types of trusts. The important thing is that you understand the types of trusts that can be used so that you can make educated decisions for your estate and assets.
So what you can you put in a trust? You can put all kinds of different things inside a trust. You can have cash within a trust. You can have a trust within a trust. You can also include other belongings like a house, stocks and bonds, guns, farmland, equipment, etc.
Now a trust doesn’t necessarily have to be a stand-alone document. You can actually have a trust that resides within your last will and testament. This is called a “testamentary” trust, or a trust within your will. So there are testamentary trusts and then the stand-alone trusts we mentioned earlier — the revocable and irrevocable trusts.
The revocable trusts are particularly helpful if you live in a state where you need to avoid probate. That is the case in the State of Florida, and we have created many revocable trusts for Florida residents over the years. Avoiding probate is one of the main reasons we use the revocable or living trusts. These types of trusts also provide a way for someone to intervene and provide some professional management of the trust in the event that the trustee or grantor can no longer manage those assets. If you (the grantor or the trustee) become incapacitated, then your successor can help and manage those assets for your benefit.
There are downsides to each of the different types of trusts. The downside to a revocable trust is that those assets count against you if you’re trying to qualify for Medicaid or VA benefits. If you require skilled nursing, assisted living, or nursing home care later in life, the assets inside the revocable trust will likely prevent you from Medicaid qualification. This means that those assets would then be used to pay for your nursing home or assisted living stay. For more information on eligibility rules for Medicaid and/or VA qualification, send us an email to firstname.lastname@example.org.
On the other hand, assets inside an irrevocable trust will not be counted considered if you’re trying to qualify for Medicaid or VA benefits. This is the type of trust we use when clients are trying to protect their assets from being used to pay for long-term care. The irrevocable trust allows you to protect your assets so that they are passed to your heirs as opposed to being taken by the nursing home.
So what makes a trust irrevocable? Simply put, we place a lid on it. The metaphorical “lid” is basically saying that you’re transferring those assets into the trust and that you don’t retain any power over those assets. Now that’s not saying that you can’t have some control over the ultimate disposition of those assets or the power of the trustees. That can certainly be done, although it has to be done in a careful manner.
When creating an irrevocable trust, we will work with you to determine the appropriate amount of assets to place in that trust. But what happens when a situation arises and you need to pull some of those assets within that irrevocable trust? Depending on your situation, we can put a “spigot” on the irrevocable trust so you can obtain income from that trust. And if you need to pull principal from the trust, we can do that as well. It should be noted that there are tax consequences for doing this and pulling these assets from the trust can affect your eligibility for Medicaid and VA benefits. So it should be done carefully.
Each individual situation is different. We want to ensure that you have enough assets to live comfortably, but also that your assets are protected from nursing home expenses should you need long-term care at some point in your life. We want to design the trust so that you are eligible for Medicaid should you need it, and therefore Medicaid can pay for the nursing home instead of your estate. There are look-back rules for these irrevocable trusts that we use for asset protection, but there are also exceptions to those rules that we can use to your benefit.
Here’s a basic recap:
Types of Trusts:
Testamentary Trust – a trust that you have within your will.
Revocable Trusts – a trust that you control during your lifetime. These trusts are most often used to avoid probate. With this type of trust, the assets are not protected from skilled nursing costs and the assets will be counted against you for Medicaid or VA eligibility.
Irrevocable Trusts – a trust that you can’t change, but that provides asset protection against long-term care costs. Look-back rules do apply here, so the trust creation and planning must be done in advance.
Contact Us So We Can Help
If you have further questions about the different types of trusts, give us a call (229-226-8183), complete this CONTACT FORM, or send us an email to email@example.com. We’ll help you decide which type of trust is best for you and what assets you should place into that trust. If you’d like to see this blog in video format, you can watch it below. Please be sure to SUBSCRIBE to your YouTube channel and hit the bell notification button so that you are notified each time we release a new video.