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Trusts can play an important role in estate planning

On Behalf of | Jun 28, 2024 | Estate Planning |

Estate planning is rarely a straightforward process. And for those who have considerable assets, planning for long-term care needs and eventually distribution to beneficiaries can be particularly challenging.

One option that can help individuals to achieve their estate planning goals is to set up trusts, although not all trusts are the same. Understanding the basics of how trusts function can help those with considerable assets to make more informed choices about their estate planning options.

Revocable versus irrevocable trusts

One of the primary differences between certain trusts is that they’re either revocable or irrevocable. A revocable trust is one that you maintain control over, so you can change the terms or dissolve it as desired. An irrevocable trust is one that a trustee controls, so you can’t change or cancel it once it’s set up and funded. Both types of trusts can get assets to your beneficiaries privately since they bypass the probate process.

Irrevocable trusts have some benefits that revocable trusts don’t. Because you don’t control those assets, they aren’t counted as part of your estate. This can reduce estate taxes. Additionally, the assets are protected from creditor claims against you.

Medicaid planning

Many Americans who are over 65 years old receive Medicare, which isn’t a needs-based program. Medicare doesn’t provide coverage for long-term care, so some of these individuals will need additional assistance.

Medicaid is a government-administered medical coverage program. It’s needs-based, so only people who meet specific requirements are eligible. Part of creating an estate plan can be using specific trusts, such as a Medicaid Asset Protection Trust, to house assets in a way that won’t impact eligibility.

Because the Medicaid program is needs-based, it uses a five-year lookback period to determine eligibility. Certain transactions, such as selling assets or giving them away during that time can result in a penalty that’s handled via a specific period of ineligibility.

Estate planning can be a complex undertaking, especially for those with considerable assets. Working with a legal representative who can assist with finding ways to facilitate an individual’s unique needs and goals can help to reduce the stress for anyone who’s creating an estate plan.