There is not a day that goes by when I am not asked by someone ‘what are trusts?’. Invariably, the next thing I hear is ‘my neighbor has a trust, do I need a trust?’. First and foremost is you should never assume your particular situation or estate planning needs is identical to anyone else’s and as such you should start by seeking legal advice from an Estate Planning and/or Elder Law Attorney on these matters.
In terms of trusts generally, there are three (3) types of trusts worth mentioning.
1 – Revocable (revocable living) Trust.
A revocable trust is an agreement created by the “Grantor” or “Settlor” with the assistance of attorney to provide a vehicle for an orderly distribution of your assets to your “named” beneficiaries when you die. With revocable trusts you can revoke and/or amend the trust and you typically have complete control of the trust assets.
The revocable trust is a wonderful tool for probate avoidance. If you properly fund the trust which is re-titling assets to the trust, estate administration can be avoided which can be costly and timely. The revocable trust also protects your privacy.
2 – Irrevocable Trusts (asset protection trusts).
Unlike a revocable trust, assets transferred to an “irrevocable” trust cannot be changed or dissolved by the “Grantor or Settlor” once it has been created. The Grantor is no longer the owner of the assets. The assets are owned by the irrevocable trust. These trusts however can be one of your most essential estate planning tools.
As with revocable trusts when properly funded, your irrevocable trust can spare you and your loved ones costly and time-consuming estate administration.
Unlike the revocable trust, an irrevocable trust can also provide creditor protection from future creditors. These assets are unreachable and that’s because the Grantor no longer owns the asset, the trust owns the assets.
Another important feature of an irrevocable trust is that trust property and resulting appreciation of the trust assets are not subject to your taxable estate allowing a tax saving and efficient way to transfer accumulated wealth to your family.
As previously stated, an irrevocable trust can also provide creditor protection from future creditors which includes potential “long term care” nursing home costs. The irrevocable trust is a tool being used by elder law attorneys to assist families in avoiding the need for nursing home spend-down measures dissipating all of your hard-earned assets.
3 – Testamentary Trusts.
A testamentary trust is a trust that is formed by or within your will. With a testamentary trust, you are leaving your assets to a trust for the benefit of the surviving spouse and then ultimately to your children upon the surviving spouses’ death. The goal when using these types of trusts is to create a situation to protect one-half of your assets from the cost of long-term care. It is essential when using these trusts to make sure you re-title assets among the spouse so that each will own half of the assets in his or her name. Many families are taking advantage of the opportunity to use testamentary trusts as a tool to protect their life savings. These trusts can very well provide an opportunity to not only protect assets but also giving a surviving spouse a chance to be eligible for MassHealth (Medicaid) long-term care benefits.