As we age, it may become increasingly difficult to manage our assets and pay our bills. Many of us will, at some point, need assistance with these details to help ensure that our financial and other assets aren't depleted. That's why it's important that planning is in place to help seniors protect themselves and their assets. If you or an aging loved one are looking for ways to provide for management of assets upon incapacity, a Living Trust is a good way to do so. Living Trusts allow seniors to rest assured that their finances and assets are managed by a trusted person.
What is a Living Trust?
Living Trusts help protect and manage the assets of those who cannot do so themselves due to age, illness, or disability. Many seniors assume that a Last Will and Testament is the only protection they need. However, trusts are designed to safeguard the assets of the living, while Wills only outline what happens to a person's assets when the pass away. As such, a Will does not provide for management of assets upon incapacity or age-related frailty.
To establish a Living Trust the owner, or settlor, places assets within the trust, a process called funding the trust. The settlor then appoints a trustee to manage it and names beneficiaries to receive the assets of the trust when the time comes.
There are different types of Living Trusts, which fall into two broad categories: revocable and irrevocable trusts. Let's take a two look at each and the ways these trusts can benefit seniors.
Revocable Living Trusts
A Revocable Living Trust safeguards seniors by providing instructions on how the creator of the trust wants their funds to be used for them in the event of their incapacity and appointing a trusted individual to acts as trustee to manage money or assets in the trust. The settlor (senior) can amend or revoke the trust at his or her own discretion without the consent of anyone else. This type of trust allows the settlor to stay in control of assets. Often, the settlor will serve as trustee initially and then designate one or more successor trustees to take over in the event of the settlor's incapacity. Upon the settlor's death, the trustee distributes any assets that remain in the trust to the people and/or charities as designated by the settlor when the trust was established.
Irrevocable Living Trusts
An Irrevocable Living Trust is one that cannot be changed or revoked by the trustmaker. This means that the settlor/trustmaker gives up his or her rights to the assets once they are transferred. Seniors who are concerned about qualifying for Medicaid without spending down all of their savings may choose to transfer some assets into an Irrevocable Living Trust. Once assets are in an irrevocable trust, they cannot be counted for Medicaid eligibility purposes, but there could be a penalty for transferring assets to an irrevocable trust.
An elder law attorney can assist in determining the best way to set up this type of trust and how to best transfer assets based on Medicaid stipulations. This type of trust can also remain in place for a surviving spouse after the settlor's death.
The sooner assets are placed in an Irrevocable Living Trust the better, as a penalty will be assessed by Medicaid during the first 5 years the trust is in existence (if Medicaid is required during that time).
Ultimately, Living Trusts give seniors more control over their assets, allowing them to set parameters and stipulations and appoint a trusted advisor to help them make decisions. If you or your loved one would like more information about setting up a Living Trust, we can help. Contact us to discuss how we can tailor a trust to your specific situation and needs.