Estate Planning Part 4- Trusts

In Estate Planning Part 1, we talked about how to avoid the probate process on an asset-by-asset basis. Sometimes, it makes more sense to use a trust to accomplish the same goal. However, trusts can be expensive and usually it’s less costly to consider the route in Estate Planning Part 1.  

                       

Generally speaking, in Ohio, there are five times when trusts are recommended as the best way to achieve your estate planning goals: to avoid Medicaid, to avoid the federal estate tax, to plan for special needs adult and minor children, to maximize benefits, and to attach strings from the grave. There are other reasons that you might consider a trust depending on your particular family situation, for more information, please seek the advice of an estate planning attorney.

The first reason to get a trust is to avoid Medicaid. Medicaid has a five year look-back period for asset transfers. So, if you want to protect your asset from Medicaid, you will need to transfer it into an irrevocable trust five years before you need Medicaid assistance. This takes some planning well in advance of going on the Medicaid system. Some pitfalls to an irrevocable trust in this case include loss of control. An irrevocable trust, to be truly irrevocable, must be completely out of your hands. That is, you would have to appoint some other person to control the assets once you transfer them into the trust. Essentially, it’s as though you have already given these assets to your beneficiaries well before your death. These assets, however, would be protected from Medicaid reimbursement and saved for your loved ones.

The second reason is to avoid the federal estate tax. The State of Ohio abolished their estate tax on January 1^st, 2013. The only estate tax for Ohio estates that remains is the federal estate tax. To qualify for that estate tax, you must have Five Million Dollars or more in assets. If you are below that mark, you need not worry about the estate tax. This type of trust may be revocable or irrevocable. So you would still be able to control the assets all the way up until the time of death.

The third reason to get a trust is to plan for special needs adult or minor children. To qualify for state programs that will assist these children, they can only have a limited dollar amount disbursed for their use periodically. A trust can be set up to benefit them over a long period of time and ensure that they get maximum state help and maximum spending money under those state programs.

The fourth reason is to maximize your benefits. Some benefit programs pay more money to those with less assets or income. To maximize your benefits, you can place your assets into an irrevocable trust to shield them from being counted as owned by you (and sometimes you can use a revocable trust in these instances which will allow you to control the asset).

The final reason to consider a trust is to attach strings from the grave. In the event that your beneficiaries’ lives would be ruined from having too much money at one time, or if you want to provide for your family over a long period after your death, a trust can be created that will make periodic payments to them over a long period of time.

Of course, trusts are expensive to make and administer of a long period of time, which is why it is often-times better to use an alternative estate planning method explained in my first article.

-Attorney Michael Wagner