Estate planning can be an intimidating process for anyone. Sometimes it feels like the attorneys are speaking a foreign language full of confusing terms and concepts. Seck & Associates is going to present a series of estate planning blogs to break down and provide a brief overview of several common terms, concepts, and types of trusts to help our clients work with us to achieve their goals. Although in this series of blogs we will attempt to provide a general overview of this process, it is important to remember that very estate plan is unique, and structuring depends on 1) the types of assets currently held by the client, 2) the client’s retirement plans, 3) the client’s anticipated need for long-term care, 4) the client’s wishes for distributing property and wealth to both the client and others throughout the client’s life and following the client’s passing, and 5) tax considerations. After you gain the following general estate planning knowledge, we are happy to sit down with you and address the specific needs of you and your family.
Last week we discussed what part a Will and a Trust play in the estate planning process. This week we explain the many different types of Trusts available.
Part III – Trust Variants
Some of the most common Trusts include Revocable Living Trusts, Irrevocable Trusts, Grantor Trusts, Asset Protection Trusts, and Medicaid Asset Protection Trusts. The following is a brief explanation of each of these types of fundamental Trusts. Each of these Trusts can take several forms and have unique provisions to address the Trustor’s wishes.
· Revocable Living Trusts are used to hold assets during the Trustor’s life and transfer them to the Beneficiaries designated by the Trustor upon the Trustor’s passing. The terms of Revocable Living Trusts can be changed by the Grantor at any time, including who the Beneficiaries of the Trust are. The Grantor is also free to transfer assets into and out of the Trust at any time, or even terminate the Trust.
· Irrevocable Trusts hold assets transferred by the Grantor that will be distributed to the Beneficiaries upon the Grantor’s death. Unlike Revocable Living Trusts, Irrevocable Trusts generally cannot be changed by the Grantor once they are created. Irrevocable Trusts are usually created to help plan for income and estate taxes and help shield assets from creditors in case of financial distress experienced by the Grantor.
· Grantor Trusts are any type of Trust where the Grantor retains control of the Trust assets. Taxes on Trust income from Grantor Trusts are paid by the Grantor under most circumstances.
· Asset Protection Trusts are trusts designed to shield assets in the event of the Grantor’s financial distress. These Trusts take the form of Irrevocable Trusts, and are designed to prevent creditors or plaintiffs in lawsuits involving the Grantor from gaining access to Trust assets.
· Medicaid Asset Protection Trusts are used by Trustors that want to preserve assets from being “spent down” in order for the Trustor to be eligible for Medicaid payment of long-term care expenses. These Trusts must be set up well in advance (5 years) of a Trustor needing to enter a care facility. If the 5-year timeframe isn’t met, in almost every state Medicaid will deny payment for long-term care expenses under Medicaid look-back provisions. Another option if the 5-year time frame isn’t viable is transferring assets into annuities. Specific rules apply to these types of Trusts that should be discussed before their formation.
We hope Part III of our series has provided some comfort and clarity in what to expect during your first meeting with your estate planning attorney. For your own personal consultation please reach out to us at sseck@seckassociates.com. We are happy to sit down with you and address the specific needs of you and your family.