Imagine settling into your seat on an airplane and greeting the person sitting next in the next seat. You start talking, and you find out that she is an estate planning lawyer that is willing to answer questions that you have about the subject.
This would be an enlightening exchange, and with this in mind, we will share a hypothetical conversation with an estate planning attorney in this post.
A will is all you need, right?
You certainly have to use some type of legal device to facilitate asset transfers after you are gone, and a will is an option. However, unless the situation is extremely simple and straightforward, you should consider a trust as an alternative.
Why would a trust be better than a will?
A will is admitted to probate, which is a costly and time-consuming legal process that takes place under the supervision of a court. Plus, you would be providing lump sum inheritances to the beneficiaries with no asset protection or spending safeguards.
If you utilize a living trust, the principal would be protected from the beneficiary’s creditors, and you can provide limited distributions over time to prevent reckless spending. The administration of the trust would not be subject to probate, and this is another major advantage.
There are other types of trusts that can satisfy specific objectives. For example, Medicare does not pay for long-term care for seniors, but Medicaid will cover the costs if you can qualify.
Since it is a need-based program, you would not be approved if you have significant assets in your name. As a response, you could convey resources into an income only irrevocable trust.
You would not have access to the principal, but it will not count if you apply for Medicaid. While you are living independently, you could accept distributions of the trust’s earnings.
This is just one of a number of different reasons why you may want to use a trust, and you should explore your options with an estate planning lawyer before you make any decisions.
Will my estate be taxed?
There is a federal estate tax, but most people do not have to pay it because there is a high exclusion. This is the amount that can be transferred before the tax would be levied on the remainder, and it is $11.7 million in 2021.
If your estate is subject to taxation, there are steps that you can take to mitigate the burden. This is another reason why irrevocable trusts are utilized.
When you have a trust, who is the trustee?
You would be the trustee while you are living if you have a revocable living trust, so you would maintain complete control of the assets. If you have an irrevocable trust, you would not be able to serve as the trustee.
Any mentally competent adult that is willing to assume the role can technically act as a trustee. When you are choosing a trustee, you should consider real or perceived conflicts of interest, and the person should have a good bit of financial and administrative acumen.
If you do not know anyone personally that is willing and able to assume the role, there is another option. Professional fiduciaries like trust companies and the trust departments of banks provide trustee services for a fee. This can be the right choice in some instances.
What about incapacity planning?
Every estate plan should include an incapacity component. If you have a living trust, you can name a disability trustee to manage the trust in the event of your incapacitation.
To empower someone to manage assets that are not held by a trust, you can name an agent in a durable power of attorney for property. Another durable power of attorney should be included to designate someone to make medical decisions on your behalf.
The health care agent would make choices that are not related to the use of life-support because you can record your preferences in advance in a living will.
To give your agent the ability to access your health care records, your incapacity plan should include a HIPAA release form.
We Are Here to Help!
If you are ready to have your own conversation with a Memphis, TN estate planning lawyer, we are here to help. You can set up a consultation if you call us at 901-763-2500 or 866-997-6325, and you can use our contact form if you would rather send us a message.