There are many tools in the state planning toolkit. Personalized attention is key, because there is no one-size-fits-all, cookie-cutter estate plan. Every situation is unique, so your estate plan should be custom crafted to suit your needs.
For some folks with very limited resources, a simple last will can be the right choice. However, it is really not the best option for most people that have a reasonably significant store of assets to pass along to their loved ones.
One of the problems with a last will is the fact that it must be admitted to probate. This process exists to give creditors the opportunity to seek satisfaction from the estate before the assets are distributed. It also provides a window of opportunity for interested parties that may want to challenge the validity of the will.
Though these protections are useful on one level, the probate process is not necessarily a positive for the rightful heirs to an estate. First, it will take eight months to a year at minimum, and no assets can be distributed to the inheritors during this interim. Secondly, there are expenses that pile up during probate, and this essentially comes out of the pockets of the people that are named in the will.
In addition to the probate pitfalls, there are limitations when you use a last will. One of them is the fact that you would be providing lump sum inheritances. This may be disconcerting if you have concerns about the money management capabilities of someone on your inheritance list.
If you were to use a living trust instead of a last will, you would not have to deal with any of these negatives. In the document, you would name a trustee to administer the trust after your passing, and your heirs would be the beneficiaries. We should point out the fact that you can assume these roles while you are living, so you do not surrender control of the assets in the trust.
The trustee would be able to follow instructions that you leave behind in the trust declaration and distribute assets to the beneficiaries directly. When a living trust has been established, the probate process would not be a factor, and this is a major benefit.
As we touched upon above, if you were to use a last will as your asset transfer vehicle, the inheritors would receive their bequests in lump sums. You do not have to go this route if you have a living trust.
To provide an example, let’s say that you convey an apartment building into the trust. After expenses, the rents produce $4000 in monthly income. It would be possible to instruct the trustee to distribute this $4000 each month to a beneficiary. This is one hypothetical example, but the point is that you can leave any instructions that you want to with regard to the way you want the assets distributed after you are gone.
Income Only Medicaid Trusts
A revocable living trust can be the right choice for many people, but there are other types of trust that can satisfy certain objectives. One of them is the income only Medicaid trust.
Many people seek Medicaid eligibility late in their lives because the program will pay for long-term care. Medicare will not pay for the custodial care that you would receive in a nursing home. Since this is a need-based program, you cannot qualify if you have significant assets in your name.
To respond to this, you could convey resources into an irrevocable Medicaid trust. You would not be able to touch the principal, but you could continue to receive income from assets that are held by the trust. However, if you do wind up applying for Medicaid, you would have to contribute most of the income to defray the cost of the care you will be receiving.
Estate Tax Efficiency
High net worth individuals can be exposed to the federal estate tax, and we have a state-level estate tax in New York. If the value of your estate is in taxable territory, you have to take steps to gain estate tax efficiency. There are various different types of irrevocable trusts that can be utilized to transfer assets at a tax discount.
Learn More About Wills & Trusts!
If you would like to learn more about estate planning strategies, there are some great opportunities coming up in the near future. We are holding a series of seminars, and you can obtain a lot of useful information if you sit in on the session that fits into your schedule. To get all the details, visit our seminar page and click on the date that works for you.
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- How to Decide Which Kind of Last Will and Testament Is Right for You - June 1, 2022
- How to Be a Caregiver from a Distance - May 25, 2022