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Trusts and Estate Planning
Article Summary: Briefly describes different trusts that people use for estate planning.
Copyright 2006 Ronald Hudkins
There are several different types of trusts that people use for estate planning. While most fall into specific categories, it is important to understand that trusts are highly individual creations – one size does not fit all. Be wary of firms who offer a cookie cutter approach or a "kit" to create your own. Any trust (indeed all estate planning activities) should be designed with careful consideration and thoughtful legal consultation. Be aware that when establishing some trusts, you may limit your options in the future.
A "revocable trust" may be established to set aside certain assets in the event that the individual becomes incapacitated. These assets never technically leave the person's ownership, so the assets are still considered part of one's estate when one applies to Medicaid for benefits. The value of a revocable trust is that you can designate a professional to manage your finances, receive income from the trust, and potentially reduce expenses associated with settling your estate at death. With a revocable trust the individual can change the terms of the trust at any time.
An "irrevocable trust" is also referred to as a "Medicaid Trust." Assets are transferred into a new legal entity that then owns those assets. These assets are then no longer considered part of your taxable estate. By shifting assets into the trust, you may now be eligible for Medicaid benefits, but subject to the specific "look-back" rules of your county (see below). When setting up the trust, you determine who will receive the assets, regular payments, and income from the assets. Irrevocable trusts may also be used as an entity to own one's life insurance policy.
This is a simplification of the process, so keep in mind that estate planning involves a lot of "moving parts" that should all be considered. Some types of transfers may result in tax liabilities and future financial limitations. Irrevocable trusts require that the individual give up some degree of flexibility with the assets and may be expensive to prepare. Once the trust is established, the individual gives up all rights to the assets that are included in the trust. You can not change the terms once it is finalized.
Since most people are concerned about spending down all of their assets to pay for long-term care, they will establish certain types of entities like trusts, give cash gifts to children, spend money on exempt assets, or engage in other legal financial maneuvers. You should make sure that your financial activities are legal as well as the smartest use of your assets. Even with perfectly legal activities, you may compromise or delay some of your potential benefits.
Article Source: http://www.upublish.info
About the Author:
Ronald Hudkins
The author, Ronald E. Hudkins aggressively coordinates with government agencies and organizations to compile information to help consumers avoid deceptive business practices. A description of his education and experience can be found at http://www.AssetProtectNow.com .
