There are some commonly held misconceptions about trusts. Many believe trusts are only for the wealthy, and wills are for everyone else.
It’s true that some trusts are designed for wealthy individuals that have estate tax concerns. However, there are other trusts that are useful for people that are not among the financial elite.
In this post, we look at some of the circumstances that call for the use of a trust instead of a will.
Unless you include a testamentary trust within a will, the heirs receive lump sums with no safeguards or asset protection.
This can be a concern if your beneficiary is not good with money. The beneficiary could burn through his inheritance too quickly and run into financial difficulties.
A revocable living trust can address this situation. Under such a trust, you act as the trustee while you are living, maintaining control of the assets.
In the trust, you name someone to act as the trustee after you pass away. When that time arrives, the trust becomes irrevocable, and the beneficiary would have no direct access to the principal.
These terms also protect the assets from the beneficiary’s creditors. With regard to careless spending, you can set limits on the distributions. For example, you can instruct the trustee to distribute a certain amount each month until the beneficiary reaches a certain age.
Special Needs Planning
A significant percentage of people with disabilities rely on state programs. For example, Medicaid may provide health insurance, and Supplemental Security Income (SSI) provides a modest income. These programs are need-based, so a person with significant assets in his name cannot qualify.
Once eligibility for these benefits is established, it is not necessarily permanent. If a beneficiary receives money, she could lose her benefits. This applies to an inheritance received through a will.
To protect a special-needs beneficiary, you could establish a supplemental needs trust. The special-needs beneficiary would not control her inheritance, but your trustee could use the resources to make her more comfortable.
Medicaid eligibility remains intact if the guidelines are followed correctly. After the death of the special-needs beneficiary, an alternative beneficiary may be named to inherit the remaining assets.
Inheritance Protections Upon Remarriage
Let’s say you are financially successful and you are getting remarried relatively late in your life. Your spouse is younger than you are, and you have children from a previous marriage.
If you leave everything to your spouse in a will, you may unintentionally disinherit your children. Under these circumstances, you can protect their inheritances if you establish a qualified terminable interest property (QTIP) trust.
Assuming you die first, the trustee you designate would distribute the trust’s earnings to your spouse for the rest of her life. Your spouse would also be able to use property owned by the trust.
The children would be successor beneficiaries, and the surviving spouse would have no ability to change the terms. After the spouse’s death, the children would inherit the assets in the qualified terminable interest property trust.
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You can schedule a consultation appointment if you call us at 405-843-6100, and you can use our contact form to send us a message.
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