Do You Need a Trust?: Estate Planning Q&A

According to the 2023 Wills and Estate Planning Survey by Caring.com, only 34 percent of Americans have an estate plan.

The primary reasons respondents gave for not participating in estate planning are:

• Procrastination
• Believing they need more assets
• Not knowing how to make an estate plan

An estate plan is a comprehensive set of legal documents and strategies that organizes assets for a person’s death or disability. Trusts are legal arrangements used in estate planning, alongside wills and advance directives.

Trusts as an Estate Planning Arrangement

A trust allows one person, known as the trustee, to manage funds and assets for one or multiple beneficiaries.

Trusts can be revocable or irrevocable.

• Revocable trusts allow the grantor – the person creating and funding the trust – to change it during their lifetime.
• With an irrevocable trust, the grantor cannot make modifications. Assets placed in this type of trust no longer belong to the grantor. Such trusts can therefore help someone qualify for government benefits, reduce their taxable estate, and transfer wealth.

Compared to wills, trusts can be more complex – and therefore more expensive – to set up. The value and utility of a trust will depend on your unique circumstances as well as the type of trust you use.

Avoiding Probate

A primary benefit of trusts is that they allow individuals to bypass probate, which can be time-consuming and costly for surviving loved ones. The court excludes property placed in trust from a probated estate.

According to Legal Zoom, probate costs can consume 10 percent of an estate’s value. The process can also take months to years to conclude, burdening family members.

Transferring assets outside probate via a trust also maintains privacy. The public can access probate records. The contents of a will might become publicly accessible since wills go through probate. But trusts, which stay outside probate, remain confidential.

Other Benefits of Trusts

In addition to avoiding probate, trusts can have tax benefits. By creating an irrevocable trust, individuals can lower the value of their taxable estate while transferring property to their loved ones.

When you use a trust, you can have more control over assets than if you gave them to the recipient directly.

• Those who wish to reward their loved ones for certain life events, like obtaining a college degree, can set up such stipulations in their trust.
• Grantors with young children can set up a trust so that a child receives funds only upon attaining a certain age.
• If a child’s marriage ends in divorce, the trust may shelter the assets as separate property.

Benefits Eligibility

Older people and those with disabilities can also use a type of irrevocable trust known as a Medicaid Asset Protection Trust (MAPT) to qualify for Medicaid.

Individuals intending to use Medicaid to pay for long-term care may place into a MAPT certain assets that would otherwise disqualify them from Medicaid. Once Medicaid’s look-back period has elapsed, they can qualify for benefits. Since a MAPT is irrevocable, the grantor no longer controls and owns the assets. As they can assign beneficiaries, they can transfer and benefit from their wealth without first exhausting their assets to go on Medicaid.

If you intend to rely on Medicaid in your retirement, consider speaking with an estate planning attorney to learn more about whether a Medicaid Asset Protection Trust could benefit you.

Special Needs Trusts

One type of trust that can be an invaluable estate planning tool for older adults with disabilities is a special needs trust (SNT). This type of trust can preserve the beneficiary’s eligibility for Supplemental Security Income and Medicaid while providing for needs that public benefits do not cover. The trustee can use the SNT to pay for things like caregiving, outings, and entertainment.

Consult With Your Attorney

While not everyone needs to create a trust as part of a solid estate plan, trusts can benefit many people in transferring wealth. Speak to your estate planning attorney to learn more about the optimal estate planning strategy for you.

Contact us

Questions? Contact us at Elise Lampert, Attorney at Law

   

Elise Lampert, Esq.

Law Office of Elise Lampert

9595 Wilshire Blvd. | Suite 900 | Beverly Hills , CA 90212

Phone: (818) 905-0601 / Email: elise@elampertlaw.com

https://www.eliselampert.com

 

Why You Should Designate Beneficiaries

According to WealthCounsel, over a third of Americans have experienced or witnessed familial conflict when someone dies without an estate plan. While most people believe having an estate plan is important, only a third have a plan in place, per Caring.com’s 2023 Wills Survey.

While most adults in the United States think all they need for an estate plan is a will, a comprehensive and effective estate plan involves more than simply making a will.

A crucial yet often overlooked component of estate planning is reviewing assets, such as 401(k)s, pensions, and savings accounts, and ensuring you have listed a beneficiary for each of these.

Avoiding Probate

Designating beneficiaries often allows your assets to go directly to your loved ones without going through probate. In probate, the court will have to oversee the distribution of assets in an estate.

Avoiding probate by naming beneficiaries can help your loved ones in several ways.

• It saves money. Costs associated with the probate process can consume up to 10 percent of an estate, per Legal Zoom.
• It saves time. The probate process can also be time-consuming in certain states, taking months to years to complete.
• Naming beneficiaries helps ensure your wishes are carried out. Even if you have a will, individuals might contest it, challenging its validity.

Selecting recipients for individual assets is essential because if you do not designate beneficiaries for your assets, they become part of your estate subject to probate. Those who receive your assets might be different from whom you had intended.

Reviewing your assets and ensuring you have your loved ones listed as beneficiaries gives an extra layer of protection that they will receive what you envision passing on to them.

Ensure You Have Designated Beneficiaries for These Assets

As part of creating your estate plan, you should assess your assets and make sure you have listed beneficiaries and that your selections are up to date.

If you have any of the following, check to ensure you have the person or persons you want to receive the assets listed as beneficiaries.

• Retirement accounts – In addition to traditional IRAs and Roth IRAs, there are other types of IRAs, such as SEP IRAs and SIMPLE IRAs. Reviewing the beneficiary designations on all types of retirement accounts is essential.
• Annuities – Annuities provide regular payments to individuals over time, typically as a source of retirement income. Most plans allow you to select one or multiple beneficiaries.
• Pension Plans – If you pass away before retirement, some pension plans provide lump sum payments to named surviving loved ones.
• Bank accounts – Pay-on-death or transfer-on-death bank accounts allow you to list beneficiaries who assume ownership of your account after you pass away. This is different from a joint account, where you and another person both own the assets. In a pay-on-death account, your beneficiary takes ownership after you pass. You can add and change beneficiaries directly through your financial institution.
• Investment accounts – Like other financial accounts, investment accounts can be transferred to a recipient upon the owner’s death.
• Health savings accounts – You can obtain the necessary form to transfer your health savings account by contacting your HSA provider or visiting their website.
• Life insurance policies – Those with life insurance policies typically select who will receive the payment when they establish their policy. However, policyholders should remember to review and update their plans when circumstances change, such as after a divorce or death.
• House – When you create a transfer-on-death deed, you can transfer your house upon your death and bypass probate. For older adults, this can be a safer option than adding someone to the deed, as it preserves their full ownership of the property until death.
• Car – Certain states allow people to name a transfer-on-death beneficiary for their vehicles.
• Business Interests – If you own a business, be sure to review partnership agreements, shareholder agreements, or operating agreements for transfer provisions.
• Digital Assets – Some online platforms allow you to assign someone to manage your digital accounts after your death.

Multiple Beneficiaries and Successors

In many cases, you may name more than one beneficiary. For instance, a person with two children might want to leave an asset to them both. Depending on the type of asset, you can state how much of the asset each child receives.

It is also vital to consider successor beneficiaries. A successor obtains the asset if the original recipient passes away. For instance, you could list a beneficiary and a successor on a pay-on-death account.

Changing Beneficiaries

You can change whom you listed as a beneficiary as your relationships and circumstances evolve. When you designate a beneficiary on an asset such as an account, they assume ownership only after you die. Generally, they will not have an ownership interest while you are alive and can handle your own affairs.

Estate Planning Attorney

Organizing your assets to plan for the future can be challenging and complex. With the help of your estate planning attorney, you can develop a solid plan to distribute your assets to your loved ones according to your wishes. 

Contact us

Questions? Contact us at Elise Lampert, Attorney at Law

   

Elise Lampert, Esq.

Law Office of Elise Lampert

9595 Wilshire Blvd. | Suite 900 | Beverly Hills , CA 90212

Phone: (818) 905-0601 / Email: elise@elampertlaw.com

https://www.eliselampert.com