Many people assume that a last will is the right estate planning document to use unless you are extremely wealthy. High net worth individuals certainly do use trusts, but there are many other reasons why a trust can be a better choice than a will, irrespective of your net worth, and we will look at some of them here.
Special Needs Planning
If you have a person with a disability on your inheritance list, you have to take benefit eligibility into account. Medicaid serves as a much needed source of health insurance, and Supplemental Security Income is another benefit that provides a modest source of monthly income.
These are need-based benefits, so there are income and asset limits. A significant inheritance that is received through the terms of a will would change the benefit recipient’s financial profile, and eligibility could be lost.
There is an estate planning solution in the form of a supplemental needs trust. A trustee that is named in the trust declaration would be able to use assets in the trust to make the beneficiary more comfortable. As long as the rules are followed correctly, ongoing eligibility for these benefits would not be negatively impacted.
Probate Avoidance
When a will is utilized, the estate administrator is the executor (also known as a Personal Representative in South Carolina). After someones passing, their will would be admitted to probate, and the court would supervise during the estate administration process.
Probate will take at least eight months to year to run its course in most jurisdictions, and no inheritances are distributed during this interim. It is a public proceeding, so anyone that is interested can find out the terms, and there are considerable expenses that accumulate during probate.
If you were to use a revocable living trust instead of a will as the centerpiece of your estate plan, the trustee would be able to distribute assets to the beneficiaries outside of probate. As a result, these pitfalls would be avoided.
Medicaid Eligibility
Most senior citizens will need some form of living assistance eventually, and 35 percent of elders will reside in nursing homes.
A year in a private room in a nursing home in our area can cost somewhere in the vicinity of $100,000, and the average length of stay is 12 months. That alone is enough to make you take notice, and a married couple may be looking at two different rounds of nursing home costs.
Medicare does not pay for living assistance, but Medicaid will pick up the tab. As we have stated, it is a need-based program, so you have to divest yourself of assets to obtain Medicaid eligibility.
This can be done through the utilization of an irrevocable income-only Medicaid trust. You would not be able to touch the principal, but it would not count if and when you apply for Medicaid. As the name would indicate, you could continue to receive income that is generated by the trust while you are living independently.
Spendthrift and Creditor Protections
Generally speaking, if you use a will to state your final wishes, the people that are named as inheritors would receive lump-sum bequests. This may be perfectly suitable for some people, but it can be a source of concern if you are leaving an inheritance to someone that is got good with money.
In addition to the probate avoidance benefit, a living trust can be the ideal solution if you have a spendthrift on your inheritance list. You can make this person the beneficiary, and you could instruct the trustee to distribute assets to the beneficiary incrementally over an extended period of time. A spendthrift provision can be included to protect the principal from the beneficiary’s creditors.
Attend a Free Webinar or Seminar!
If you would like to learn more about important estate planning and elder law topics, we have some great opportunities coming up in the near future. Our attorney is holding a number of information sharing events, and you can learn a lot if you attend one of these sessions.
There is no charge, but we ask that you register in advance so we can reserve your spot. To see the dates, visit our webinar/seminar page and follow the simple instructions to register for the session that fits into your schedule.
Hunter is a member of the South Carolina Bar Association, the Beaufort County Bar Association, and has served on charitable and advisory boards in the Bluffton/Hilton Head area.
Hunter graduated from Hilton Head High School. He then earned his Bachelor of Science Degree in Economics from Clemson University, in Clemson, South Carolina.
Hunter graduated Cum Laude from Regent University School of Law in Virginia Beach, Virginia, having earned a Juris Doctor Degree. He also wrote his doctorial thesis on Estate Planning Dynasty Trusts.
Hunter has called Beaufort County home for since 1984, where he lives with his wife and two children.In his spare time he dabbles in automobiles, reading history, hunting and fishing.
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