An Overview of Trusts
You should be aware of all the different tools that are at your disposal when you are planning your estate. There are a number of different types of trust that can be utilized to satisfy various respective aims, and a trust can be far more effective than a simple will.
Irrevocable TrustsThere are some reasons why you may want to relinquish direct ownership of assets. This can be done if you convey resources into an irrevocable trust.
What are some of these reasons? High net worth individuals can be exposed to estate taxes. We have a federal estate tax, and some states have state-level estate taxes. (Fortunately, Ohio is not one of them.)
If you are exposed to the estate tax, you could convey assets into an irrevocable trust, or multiple trusts. This would reduce the taxable value of your estate, and they would eventually be transferred to a beneficiary at a tax discount.
Another reason why people use these trusts is to gain Medicaid eligibility. This need-based government program will pay for a stay in a nursing home, but Medicare does not cover custodial care.
The grantor of an irrevocable Medicaid trust can receive income that is generated by assets in the trust, but they would not be able to touch the principal. If and when the trust creator applies for Medicaid, the principal would not be counted.
You could establish an irrevocable self-settled asset protection trust to shield assets from many future creditor claims and lawsuits. All states do not recognize them, but you can establish an asset protection trust in Ohio.
Revocable Living TrustThe revocable living trust is an estate planning device that can be used when you do not have any motivation to surrender incidents of ownership. With this type of trust, you would act as the trustee and the beneficiary while you are alive and well.
You would have total control of the assets in every way, and you would be able to change the terms of the trust. As the name would indicate, you could revoke it entirely if you ever choose to do so.
In the trust declaration, you would name an individual or a professional fiduciary to act as the trustee after your passing, and your heirs would be the beneficiaries.
One major advantage is the avoidance of probate. This is a costly and time-consuming legal process that would be necessary if you record your final wishes in a simple will.
You could include spendthrift protections if this is a source of concern, and you could name a disability trustee to administer the trust in the event of your incapacity.
The consolidation of the assets that will comprise the estate is another benefit. These trusts can be very advantageous for individuals, and if you are married, you can establish a shared living trust with your spouse.