When would it make financial sense to place our assets in a Trust?
A trust is an estate planning document that allows assets and other property that has a title or deed to be re-named in the trust so when the person creating the trust dies, the assets and property in the trust are distributed according to the terms of the trust and avoid probate. The most common reason people create trusts is to avoid having their assets go through the probate process for failure to name a beneficiary. If people are married, they can create their own, individual trusts or a joint trust.
A trust allows the person or persons who created the trust (called the “Grantor”, “Settlor” or “Trustmaker”) to handle their money and assets as they always have done so long as they have capacity, but if they become incapacitated and unable to handle their finances, a trustee that is appointed then assumes the duties as Successor Trustee. The Grantor may include specific instructions for the Successor Trustee regarding support of dependents, support of the spouse (if both spouses are incapacitated) and other financial matters.
When the Grantor(s) has died, the Successor Trustee will likely have specific instructions about distribution of trust assets to named beneficiaries, charitable organizations or other beneficiaries the Grantor designated. The Successor Trustee may have on-going trustee responsibilities if there are minor or disabled beneficiaries whose inheritance under the trust will continue to be managed by the Trustee.
The most common type of trust is the Revocable Living Trust. It can be changed at any time, can easily accept additional assets as the Grantor acquires new assets and property and only becomes irrevocable (unable to be changed) when the Grantor dies. During the Grantor’s life, the Grantor’s Social Security number is the identification number of the trust and no separate tax return is filed for the trust.
Irrevocable Trusts are used primarily to hold either life insurance, to take advantage of favorable tax treatment of life insurance held in such a trust and to enable the Grantor (the owner of the life insurance policy/policies) to be able to designate to whom and how the life insurance is to be distributed upon his or her death or to protect and preserve assets for estate or Medicaid planning. The terms of an irrevocable trust cannot be changed, other than administrative provisions that may need to be changed due to changes in the law or as a court may allow. Since these trusts cannot be changed, a person considering creating this type of trust should consult with an experienced attorney who knows the pros and cons of creating such a trust. Although these trusts do protect assets for Medicaid and VA planning purposes, they do not allow the Grantor to have access to the trust funds and have other restrictions that may make these undesirable.
Special Needs Trusts are another type of trust, but applicable to individuals who are disabled. This type of trust allows a disabled individual to qualify and maintain eligibility for public benefits, such as Medicaid, SSI, food stamps, and keep assets that would usually be counted as disqualifying the individual from these need based programs.
The assets in a Special Needs Trust are not available to the disabled person – the funds and other assets are held in the trust and the Trustee has the discretion whether to use the assets for good and services that the disabled individual’s benefit programs do not pay for. The intent of this type of trust is to supplement, not replace, public benefits available to the disabled individual. In this way, a disabled individual can receive an inheritance, maintenance through a divorce, a lump-sum Social Security disability payment or settlement/award from a lawsuit and not have these funds spent-down to regain eligibility or to become eligible for public benefits.
Debra K. Schuster, M.H.A., J.D.
Debra K. Schuster, P.C.
St. Louis, Missouri