The Versatility of Trusts

Many people think the only use of trusts is to avoid estate tax. But trusts have many other uses, even for those without a large estate.

The key to a trust is that it can be created to do anything the creator wants. All they need to do is come up with the rules that others will follow. The more clear and concise the rules, the more likely they are to be followed by successor trustees and upheld by the courts. In this way, the creator can exert control over the trust property long after death or incapacity.

A trust can be revocable or irrevocable. With a revocable trust, the trust creator has the ability to alter the trust after being set up. However, the assets of the trust are not protected from creditors or taxes. With an irrevocable trust, assets are protected from future creditors but the trust cannot be changed afterwards.

The primary purpose of a trust for those without estate tax worries is that a trust avoids probate. Probate is a court-managed process of resolving ownership of the deceased’s estate. This can be time-consuming and involve substantial attorney, administrator, and court fees. The process is also a matter of public record.

Trusts can also be used to help those needing long-term care qualify for Medi-Cal and avoid Medi-Cal reimbursement. A typical middle-class person has no long-term care insurance. This means the estate they spent a lifetime building would need to be spent before qualifying for Medi-Cal, leaving the family nothing. A well-crafted Medi-Cal Asset Protection trust can save the estate for heirs while still providing much needed medical care.

Even for the healthy, trusts can be used to protect assets against creditors or lawsuits. Asset Protection Trusts are used to shield assets from future creditors, often in favor of family and loved ones. Even if the assets can be discovered, they can be protected. It all depends on how, why, and when the trust was established.

There are many other uses for trusts. With trusts, the details matter. If you believe you could be helped by a trust, please contact an estate planning attorney for further guidance.

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