Results and Feedback on our Trust Questionnaire
A trust may not be for everyone, but for many, it is an important step in protecting your home, retirement, and everything you have spent a lifetime building. Here are several scenarios in the questions you answered where a trust will protect your assets.
1. Do you have children from a prior marriage?
This is a very common scenario where a “Family Asset Protection Trust” is highly recommended. Consider this example: Husband and Wife are in their second marriage. Wife has two kids from a prior marriage. Wife passes away and leaves all of her assets to Husband, remainder to her kids. Five years later, Husband is lonely, falls in love, and gets married to Pamela. Husband creates a new estate plan naming his new wife Pamela as primary beneficiary of his estate, remainder to kids. Husband dies. New wife, Pamela, never got along with Husband’s step-children. Pamela creates a new estate plan that disinherits his children and instead names her brother as beneficiary. There are a number of trust planning strategies in this example that could provide for Husband, while also safeguarding a legacy for Wife’s children.
2. Do you want to avoid estate taxes?
Federal estate taxes are as high as 40%. To avoid estate taxes, you could create an AB trust that would transfer 100% of growth and principal, estate tax free, to beneficiaries.
3. Do you have children or beneficiaries who might be at the risk of creditors?
A trust planning strategy is recommended when you have children or beneficiaries with spending issues. If your children inherit a home, retirement plan, or other asset, a creditor can attach its interest in their inheritance. Creation of trust with proper trustee provisions could greatly reduce, if not eliminate, creditors from attaching their interest in this example.
4. Is it possible that any of your children will be divorced within the next 10 years?
A trust is recommended if your children may be at risk of divorce. If your children receive an inheritance, and then subsequently get divorced, the ex-spouse may be entitled to receive a portion of that inheritance – often it’s fifty percent. Creating a family trust could reduce, if not eliminate, ex in-laws from receiving half your children’s inheritance.
5. Do you want to avoid probate?
There are a number of probate avoidance methods including the creation of a trust. Don’t let the State be in control of your assets. Implement probate avoidance strategies like creating a trust to save time, cost, and headache.
6. If over the age of 60, are you concerned that you will ever need the care of a long-term care facility (e.g. nursing home or assisted living)?
No one ever wants to end up in a nursing home. But the fact is that at least some point in life, we all will need the care of others to help with daily living activities (cooking, cleaning, dressing, bathing, etc.). Requiring any level of care requires the assistance from friends and family but more likely requires the assistance from a paid professional. If you need that care, the money can only come from one of a few places: (1) out-of-pocket; (2) Medicaid assistance; (3) Long-term care insurance; or (4) Veterans Assistance. Medicaid will pay for you to enter a nursing home but it comes with a great expense. In order to be eligible for Medicaid you must spend down all your assets first. Thus, your home, bank accounts, retirement accounts, and what you’ve spent a lifetime trying to build, must all be extinguished and spent down before you can receive Medicaid federal financial assistance. In the unfortunate event that you need to go into a nursing home or some form of assisted living, a “Medicaid Asset Protection Trust” or “MAPT” can protect you and your family from giving away all your assets to a nursing home.
7. Do you have an estate worth $3 Million or more?
If your home, retirement, and other combined assets are worth $3 million, then a trust is recommended to save on federal estate taxes. Through creation of trust, you can avoid tax rates of nearly 40% for children.
8. Do you want your children to receive their inheritance in payments over time (versus an outright distribution)?
Through creation of trust, you are able to control how your estate is passed on. This might be through payments over time, money to charities, or accomplishment of an event (college degree, marriage, etc.).
9. Do you want your estate to be private?
You can create a “Family Asset Protection Trust” if you want your estate to be private. Having only a will, will make your estate accessible on public record. This can be a burden for children or beneficiaries who might be hassled by scam artists, charities, or creditors.
10. Do you want to leave a portion of your estate to a charitable organization?
When you want to leave money to a charitable organization, a trust is recommended.
11. Do any of your children and/or beneficiaries receive Medicaid, SSI, or SSD?
If you pass away and leave your child with a lump sum inheritance, that money will be treated as income. This income will likely prevent them from receiving further government assistance until the lump-sum is spent down. There are a number of ways to place money in trust and pay beneficiaries over time, which would safeguard against being kicked off government assistance.
12. Do you own a business with partners?
When a partner dies, the deceased partner’s family is entitled to half of the business’ worth. To prevent one partner from being in business with another’s family, it’s imperative to create a business succession plan coupled with a trust.
13. Are you currently in a second marriage?
A second marriage is a very common scenario where a “Family Asset Protection Trust” is recommended. Consider this example: Husband and Wife are in their second marriage. Wife has two kids from a prior marriage. Wife passes away and leaves all assets to Husband, remainder to kids. Five years later, Husband is lonely, falls in love, and gets married to Pamela. Husband creates a new estate plan naming his new wife as primary beneficiary of his estate, remainder to children. Husband dies. Pamela never got along with Husband’s children so she creates a new estate plan naming her brother as primary beneficiary. Here the children were disinherited. This could be avoided through creation of trust.
14. Do you have children under the age of 18?
In this scenario, it is highly recommended that a “testamentary trust” is created. Because of your child’s age, they cannot take control of their inheritance until they’re 18 years of age. If you don’t have an estate plan, the State will take control your child’s inheritance and will appoint a representative. This process can be costly and adverse to whom you would have chosen. In addition, most parents don’t want their younger children holding responsibility for the sale of a home, retirement accounts, and other assets. With a testamentary trust, you may appoint a guardian for your child to act on their behalf. Most often parents appoint a guardian that will act on their financial behalf until they reach the age of 25. This individual might spend money on education, maintenance, and support, on your child while giving the remainder after they reach the age of 25.
15. Do you want your children and/or beneficiaries to receive their estate more quickly and efficiently?
If you answer yes to this question, then in essence, you want to avoid probate. There are a number of probate avoidance methods including the creation of a trust.
To learn more, or to specifically explore whether a trust is right for you, contact our office at 216-573-3723, or use the form below to schedule a free consultation.