Often times, when meeting with clients, I bring up the topic of a trust. Most people immediately dismiss the idea, claiming they’re not worth millions of dollars and don’t need a trust. They’re right — one reason to establish a trust is to help protect large amounts of wealth from high estate tax penalties. But there are four other common reasons to consider a trust, and they don’t depend on you being a multi-millionaire:
- Control Assets After Your Death
- Hold and Share Control of Real Estate or Business Interests
- Protect Assets Prior to Applying for Medicare Assistance
- Provide for the Care and Protection of Your Pets
One of the most common reasons clients use a trust is to have a mechanism in place where they can control the distribution and use of assets after their death. Parents with young children don’t always have a lot of cash assets on hand but they may own property and likely have life insurance, which means if they were to die, there would be significant assets in their estate. If both parents were to pass away, however, their children would become eligible to receive those assets when they turned twenty-one. Instead, by creating a trust, you (or other relatives) can control those assets, and direct the assets be held for the benefit of your children, but not distributed until your children are older, or have reached a specific point in their lives (graduating college, or getting married, for example).
Real property or business assets can be placed into a trust for the purpose of sharing control of the asset between the trustees, or sharing the distribution of the value of the asset between the beneficiaries. Instead of transferring the asset directly to individuals, you can use the trust to make sure the asset will eventually be transferred, but will remain cared for and under a level of control for as long as the trust exists.
To be approved for nursing home care through Medicare, you cannot have any significant assets in your own name. The government, however, looks to see if the applicant has gifted away assets any time over the last five years (this is referred to as the “five year look back period”). It’s important to consider moving assets out of your name earlier so you can avoid the five year look back period, but transferring your house or cash assets directly to your children can be filled with risks. One way to minimize those risks is to transfer assets into an irrevocable trust, which moves them out of your name without granting full ownership in any individual.
Recent changes in Massachusetts law allow you to leave money in trust for your pets. These Pet Trusts can provide guidance about the level of care the pet should receive, and leave room to name both a caretaker for the pet and someone to ensure the trust is being enforced. (For more information, see our earlier post about Pet Trusts.)
If you have questions about trusts, or any estate planning issues, contact us at firstname.lastname@example.org or 413-570-3170.