REVOCABLE vs. IRREVOCABLE TRUSTS
Realistically, anyone who expects to die with even a small net worth may need to have a revocable living trust and a will. Like business entities, trusts operate at the direction of people. The people who create trusts and put assets into them are called grantors. The people who are appointed to operate trusts are called trustees. The people who receive funds or property under the trust are called beneficiaries.
A Revocable Living Trust is a type of trust that can be changed at any time. Since Revocable Living Trusts are so flexible, why aren?t all trusts revocable? The down side to a revocable trust is that assets funded into the trust will still be considered your own personal assets for creditor and estate tax purposes. This means that a revocable trust offers no creditor protection if you?re sued and all assets held in the name of the trust at the time of your death will be subject to both state and federal estate taxes.
Why use a Revocable Living Trust as part of your estate plan?
1) Assets held in a Revocable Trust at the time a person becomes mentally incapacitated can be managed by their Disability Trustee instead of by a court-supervised guardian.
2) To avoid probate. Assets held in the name of a Revocable Living Trust at the time of a person?s death will pass directly to the beneficiaries named in the trust agreement and outside of the probate process. Probate is a legal process that takes place after someone dies. Typically, probate involves paperwork and court appearances by lawyers. The lawyers and court fees are paid from estate property.
3) To protect the privacy of your property and beneficiaries after you die. This will keep the details about your assets and who you?ve decided to leave your estate to a private family matter. A Last Will and Testament that?s been admitted to probate becomes a public court record.
Irrevocable Trusts
An Irrevocable Trust is simply a type of trust that can?t be changed after the agreement has been signed, except in limited circumstances. Irrevocable trusts can take on many forms and be used to accomplish a variety of estate planning goals.
Why use an Irrevocable Trust?
1) Estate Tax Reduction. Irrevocable trusts are commonly used to remove the value of property from a person?s estate so that the property can?t be taxed when the person dies. In other words, the person who transfers assets into an irrevocable trust is giving over those assets to the trustee and beneficiaries of the trust so that the person no longer owns the assets. Thus, if the person no longer owns the assets, then they can?t be taxed when the person later dies.
2) Asset Protection for the Grantor and the beneficiaries. By placing assets into an irrevocable trust, the Grantor is giving up complete control over and access to, the trust assets and, therefore, the trust assets can?t be reached by a creditor of the Grantor. However, the Grantor ?s family can be the beneficiaries of the irrevocable trust, thereby still providing the family with financial support, but outside of the reach of creditors.
3) Protecting your estate in the event long term care is needed. Long term care facilities cost between $35,000 and $150,000 a year. Most people end up ?spending down? their savings until they run out. Then they can qualify for Medicaid to pick up the cost. When applying for Medicaid, officials will look at transfers made within the 5 years prior to the Medicaid application. Those who are not in immediate need of long-term care may have the luxury of protecting their assets before that look back period. Engaging an experienced Elder Law Attorney will help you to set up an irrevocable trust that will put money, property and assets within the trust, with the goal of having the estate protected from the spend down of your assets required to be granted Medicaid. The attorney can guide you in regard to the amount to be held in trust, vs. the amount personally held by the grantor. It is important to have good planning so that you can show about $125,000 in the event a long term care facility is needed. Showing at least this amount of money will help you to get into a higher quality facility, and when that money is spent down, you can apply for Medicaid.
Source: http://www.happierathome.org/protecting-your-assets-with-a-trust
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