When you sit down to create, or review, your estate plan you will likely have more than one estate planning goal in mind. Though the most important of those goals may be to ensure that your loved ones are well provided for when you are gone, you may have secondary goals that are also important to you. Your Last Will and Testament, while crucial to your overall plan, has its limits. To accommodate for the limits of your Will you may decide to include a living trust (or several) in your estate plan. Though a living trust can be used to help fulfill a virtually unlimited number of estate planning goals, there are some common uses for a living trust.
Testamentary vs. Living Trusts
Although there are a seemingly endless number of specialized trusts you may choose to use, all trusts are first divided into two basic categories – testamentary and living trusts. A testamentary trust is a trust that does not become active until the death of the Settlor, or creator, of the trust. A living trust, as the name infers, is a trust that becomes active once all the formalities of creation are in place.
Reasons to Create a Living Trust
Living trusts can be further sub-divided into revocable and irrevocable living trust. The former can be modified or revoked at any time and for any reason by the Settlor while the latter cannot. Whether you need to create a revocable or an irrevocable living trust will depend on the reason for the trust. Some common uses for a living trust include:
- Incapacity planning — if you are concerned about who will take over control of your assets in the event of your sudden incapacity, a revocable living trust may be the answer. When you create a revocable living trust you are able to appoint yourself as the Trustee and the person you wish to hand over control to as the successor Trustee. Major assets are then transferred into and out of the trust as needed and you will continue to control them as the Trustee unless you become incapacitated. At that time, your successor Trustee will take over automatically as the Trustee of the trust, thereby gaining control of the trust assets.
- Medicaid planning –– if there is even a chance that you will not be able to afford to pay out of pocket for the high costs of long-term care when you are older you need to plan ahead to ensure that you will qualify for Medicaid, which will cover the costs. To qualify, however, the value of your assets must not exceed the very low program limits. One way to protect your assets and set yourself up for eligibility is to create a Medicaid trust. A Medicaid trust is an irrevocable living trust into which you transfer your assets. Although you can no longer benefit directly from the assets you can receive the interest earned on them.
- Special needs planning – for the parents of a child with special needs, estate planning is both more important and more complicated because making direct gifts to an individual with special needs can jeopardize his//her eligibility for much needed state and federal assistance programs such as Medicaid or Supplemental Security Income (SSI). A special needs trust may be the solution. A special needs trust is also an irrevocable living trust that can provide for your special needs loved one without jeopardizing his/her eligibility for state and federal assistance programs.
The great thing about living trusts is that as the Settlor you have the ability to create trust terms that help accomplish any estate planning goal or objective. For this reason, living trusts are a very popular addition to the average estate plan. If you are considering the addition of a living trust to your North Carolina estate plan, be sure to consult with an experienced estate planning attorney to determine which type of living trust is right for you and your estate planning needs.
For additional information, please join us for one of our upcoming free seminars. If you have additional questions about estate planning in the State of North Carolina please contact the experienced estate planning attorneys at Kulas & Crawford. by calling 772-398-0720 to schedule an appointment.