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By Elder Law Attorney Patrick J. Kelleher

This is a common question we hear. Read on for information to help figure out whether you need a trust and, if so, what kind fits your specific situation. If you already have a Trust I recommend you have it reviewed by a qualified estate or elder law attorney because of changes in law and changes in your life could outdate your trust.

For example, maybe you have a disabled child and you want a trust to permit that child to inherit without losing government benefits, then you need Special Needs Trust (SNT). Maybe you or your spouse’s health is declining and you can are concerned about how would you ever pay for the $15,000.00 per month nursing home, then you need an Irrevocable Medicaid Asset Protection Trust (MAPT). If you would like to avoid the messes and stresses of Probate Court, then a properly “funded” Revocable Asset Protection Trust (RAPT) can avoid an expensive, public, and lengthy probate process before your beneficiaries can inherit after you pass. Or, you may need “Family Bloodline Trusts” (FBT) to protect your Moe, Larry and Curly’s from their potential financial creditors and predators should they fall into “times of turmoil” such as, a divorce, automobile accident or substance abuse. Or if you have an estate (everything you own) greater than one million dollars you may want to protect from the Massachusetts estate “death” tax because one dollar over the one million threshold could cost you about $18,000.00. Some of my colleagues call this the only voluntary tax you have to pay meaning if you have a properly drafted Trust with tax planning you can avoid or reduce the estate tax to the greatest degree possible.

All these are excellent reasons to consider a trust. But nobody makes you do estate planning. I call it taking immense “personal responsibility” to protect what you have for the people you love the most. These people are your “Why” because they mean so much to you that they motivate you to take action. My dear mother’s Why was her seven (7) sons. Creating your estate plan truly is an act of love because when we do not take action to protect who stands to benefit? Probate Court, the Tax-man, Financial Creditors and Predators and the Nursing Home.

Here’s the basic idea behind trusts, to help you understand why you might need one. First you should know that a Will typically is woefully insufficient to protect your assets and your Will is your “Admission ticket” to Probate Court.

What is a Trust?

Think of a trust like a treasure chest. You originally bought property or earned money in your own name. You then transfer those assets into the trust’s name a process we call “Trust Funding” – into your “treasure chest.” The trust, treasure chest, becomes a legal entity separate from you, which now holds your property in its, and no longer in your, name. That is where all the magic happens of achieving the protections from Probate Court, estate “death” tax, financial creditors and predators and the $15,000.00 per month nursing home.

Then you identify people who will occupy the three roles involved in managing trust property. First, you are the grantor, or settlor, or trustmaker – all those words mean the same thing, the “you” in this case. Second, you appoint a trustee. That person or entity is responsible for managing trust assets and following directions contained in the trust document. Third, you decide whom you want to receive trust assets – your beneficiary or beneficiaries, in other words.

In legal terms, a trust is a fiduciary agreement among you the original property-owner, your trustee, and your beneficiary. The trust document contains instructions for what you want done with trust property, both for how you want it invested and, also, for how you want trust assets to be distributed when you pass. Your Trust is like a very powerful Will on steroids because it provides much better protections for you and your family.

There are two basic kinds of trusts to understand, before they split off into their thirteen-or-more different flavors: revocable or irrevocable trusts.

The Revocable Trust

A revocable trust can be thought of like the treasure chest with the open lid. As grantor/settlor/trustmaker of a revocable trust, you can get at trust assets freely.

You yourself can also occupy all three roles in a revocable trust – grantor, trustee, and beneficiary. If need be, you can also tinker with trust terms, by freely amending them to change the directions, beneficiaries, or trustees. Or, you can revoke the whole thing. Before that point, though, the trust document will be there to take care of everything you want it to.

If you or your spouse become incapacitated, the terms of our trust will designate a person you choose to step into your shoes to manage your financial affairs and this will avoid a costly and stressful process of Conservatorship at the probate court. The trust will also direct who inherits, thus keeping your affairs private and out of probate court. This feature is especially important if you own real estate in various states. The savings in court costs in that situation could be significant because a properly funded trust will avoid the expensive cost and delays of probate court in multiple states.

The Irrevocable Trust

This is the trust for you if you desire to protect your family home from the nursing home. The statistical data states that 70% of people 70 and over will need some level of long term care someday, whether it is assisted living or nursing home care. I call it the three P’s because a lot of our clients are more house rich and cash not-so-rich and they want to “Protect, Preserve and Pass” the family home to their children to create a lasting family legacy. Unfortunately, I know this all too well with my dad dying in a nursing home and my mother taking action to beat the “Five Year Look-back” period to protect the family home. My mother’s action paid off big later in life when she was sadly diagnosed with a brain tumor. She courageously decided to go home on hospice because she was at peace knowing that she protected what she had (family home) for the people (her seven sons) she loved the most!

Think of an irrevocable trust as being like the treasure chest with the locked lid. Your trustee – who generally cannot be you – is the one with the key. You yourself can no longer reach your assets. This relinquishment of control is necessary to shelter your assets from creditors, or to protect your assets when entitlement to government benefits would otherwise require you to spend almost all you own first.

There are ways to draft an irrevocable trust carefully, so you can still exert your will over how assets are to be used. Just as in the revocable situation, you can impose conditions that must be met before a beneficiary can receive funds. You can designate how trust income is to be used for specific purposes like college tuition, business start-up, or travel. You can also authorize a person or entity as “trust protector,” who can alter trust language, correct drafting errors, or create a new similar trust if the law changes.

Next Steps:

Call our Elder Law Care Team now at (781) 871-7526 to reserve your seat at our next free educational Estate Planning & Elder Law workshop because seating is limited and we fill up quickly.

About the Author: 

Patrick J. Kelleher, Esq. Elder Law Attorney

It is Patrick’s purpose, passion and mission in life is to help his clients and their families protect what they have for the people they love the most. Patrick is the founder and owner of the Elder Law Care Center at Patrick J. Kelleher & Associates, P.C. in Hanover and Quincy. Patrick has been teaching free educational workshops at his office Learning Center and in the community for over ten years. For more information visit our website www.elderlawcare.com or call (781) 871-7526 because we are here to help you!

Reprinted from the October edition of the South Shore (and Metro West) Senior News.

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