A lot of people harbor misconceptions about trusts, and as a result, they make uninformed decisions on their own. In this post, we will provide some insight in question and answer format.
Aren’t trusts only for very wealthy people?
There is a federal estate tax in the United States that can be applied on the portion of an estate that exceeds $11.58 million. Clearly, given the size of the exclusion, this tax impacts a very small percentage of Americans.
Individuals who are exposed to the tax do use certain trusts to mitigate their tax responsibility. However, there are other types of trusts that can be very useful for a wide range of different people who are not among the financial elite.
I’m afraid of losing control of assets I place into a trust. What if I need them later?
This is a common notion that is widely held. There are two broad categories of trusts: revocable trusts, and irrevocable trusts. The basic distinction is rather self-explanatory. You can dissolve or rescind a revocable trust, but you cannot revoke the others.
In addition to the retention of the right of revocation, you have total control of a living trust while it is intact. You can essentially treat the property the same way that you would treat personally held property. It is completely accessible, so this should not be a source of concern.
Why would you create a trust that you could never revoke?
When you establish an irrevocable trust, in legal terms, you surrender incidents of ownership. The resources become the property of a trust that you can never revoke. As a result, they would not be part of an estate for estate tax purposes.
Estate tax efficiency is not the only reason why people use these trusts. A significant percentage of elders need nursing home care late in their lives. Medicare does not pay for it, and these facilities are extremely expensive.
Medicaid is another government program that will pay for long-term care. Since it is a need-based program, you cannot qualify if you have significant assets in your own name.
As a response, you could convey resources into an irrevocable Medicaid trust. You would be surrendering incidents of ownership, so they would not count when Medicaid is tallying up the value of your resources.
What is the best trust for everyday people, and what are the benefits?
This would be the aforementioned revocable living trust, and one of the major benefits is the avoidance of probate. If you use a will to express your final wishes, it would be admitted to probate, and the court would provide supervision during the estate administration process.
Probate will take close to a year to run its course in most cases, and no inheritances can be distributed while the estate is being probated by the court. There is also a loss of privacy, because probate records can be accessed by literally anyone who is interested.
This process is not free by any means. There are court costs, and the executor is entitled to payment for his time and trouble. The executor will often bring in an accountant and an attorney to provide assistance, so there will be professional fees. Appraisal and liquidation charges also often apply – along with incidental expenses and bond fees, and all this can add up considerably.
Attend a Free Workshop!
We are very committed to education, and as you can see, we have a great deal of written information that you can access on this website. In addition to these resources, we go the extra mile through the workshops that we hold to inform our neighbors about the importance of estate planning.
You can learn a great deal if you attend the session that fits into your schedule, and there is no admission charge. We do require you register in advance so that we know how many people to expect.
To see the dates, visit our workshop page. After you click on the one that you would like to attend, follow the simple registration instructions.