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Trusting a Trust: Which Trust Option is Best for Your Family?

Estate plans can be as unique as the individuals and families they are created to protect.  Do not assume that you need the same type of will or trust option that your parents or friends chose.  Instead, work with your estate planning attorney to explore all types of trusts to create a custom estate plan that will benefit you and your family most.

Below we discuss a few examples of trusts that you may want to consider.

Revocable Living Trust

revocable living trust (sometimes called a revocable trust, an inter vivos trust, or a living trust) is a trust that you create during your lifetime and can change at any time prior to your incapacity or death. It allows you to set out in writing how the assets will be distributed after you die. Assets can include real estate, bank accounts, investments, and other valuable possessions.  This type of trust has many benefits, including enabling you to continue to manage your assets while also providing protection for your beneficiaries upon your death.  Its primary purpose is the orderly administration of your estate upon your incapacity or death.

Irrevocable Asset Protection Trusts

Unlike revocable trusts, irrevocable asset protection trusts hold property that has increased protection out of the reach of creditors, including the IRS.  These types of trusts are often used to minimize death taxes. When irrevocable trusts are used, assets are transferred into the irrevocable trust and are no longer owned by you or your estate. Someone other than you is usually the trustee, meaning you trade complete control of your assets for creditor protection.  You cannot alter, change, modify, or revoke this trust after execution without significant planning.

Irrevocable Life Insurance Trust

An irrevocable life insurance trust is created to control a permanent life insurance policy while you are still alive and also names who is to receive the financial assets after you pass (the beneficiary or beneficiaries). A trustee is also named in an irrevocable life insurance trust to distribute the assets to the beneficiaries upon the death of the insured.

Medicaid Asset Protection Trusts

This type of trust is beneficial for those who are wanting to preserve their life savings or family home in case they may need nursing care one day.   If you transfer assets to a Medicaid Asset Protection Trust then after a five year “look back” period has passed, the assets are not counted against you for determining Medicaid eligibility. This type of trust is irrevocable, meaning that it is difficult to change once it is in place.  Like most irrevocable trusts, you trade control for asset protection.

Veterans Asset Protection Trusts

A qualifying combat veteran or a spouse of a combat veteran may be eligible to create a veterans asset protection trust. This type of trust is similar to a Medicaid asset trust in that its main purpose is to expedite qualification for needs-based benefits.  While a Medicaid Asset Protection Trust helps an individual qualify for Medicaid benefits, a Veterans Asset Protection Trust helps combat veterans or their spouses qualify for a specific pension that they are only eligible to receive if they have income and resources below a certain threshold.   This trust option also has a “look back” period, but it is three years instead of five – meaning that after three years pass, the assets owned in a Veterans Asset Protection Trust will not be counted against the individual who wants to qualify for the applicable veterans assistance.  T

Special Needs Trust

Also known as a supplemental needs trust, a special needs trust can be established for an individual with special needs and does not interfere with any additional government benefits they may already be receiving, such as supplemental security income, Veteran’s benefits, or Medicaid. As long as this trust is established by someone other than the person who is disabled, outside organizations will not see this financial support as a portion of their personal assets.

Many people managing the care of a family member with special needs incorrectly assume that individual must be disinherited so that they are not disqualified from benefits. There are many options other than disinheritance that offer much better long-term protection to your loved one. If you are or will be the primary long-term caregiver of a disabled family member, a plan must be put into place to ensure their unique financial, health and physical needs are met if you can no longer care for them. This planning may include special needs trusts, powers of attorney and others with unique language to protect the beneficiary who has a disability allowing them to utilize government assistance while protecting inherited assets.

Establishing a Trust

These are a few of the different types of trusts that are available to help protect your assets and the people you care about most. Littleton Legal can help you get started with the process and discuss the trust that is best for your situation. Call us today at (918) 608-1836 to schedule a complimentary consultation.

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