By Nancy Burner, Esq.
Commonly, clients will create a trust to protect certain assets in case they need to apply for government benefits as they get older and require assistance with their daily activities. While certain provisions of this type of trust will be consistent from client to client, not all trusts are the same. Understanding your trust is the first step to successfully achieving your estate planning goals.
The drafting process of the trust document is vital because it outlines the rules of the trust. Without understanding these rules, the creator of the trust or the trustee may be in jeopardy of making the trust assets available when they are assessed for Medicaid eligibility.
The irrevocable trust for Medicaid purposes will state who the creator of the trust is and who is appointed by that person to serve as trustee of the trust. The document should also include a provision stating that the creator of the trust will not have access to any trust principal.
Beyond that, multiple decisions need to be made by the client, in consultation with their attorney. These decisions will include whether or not the creator will have access to income generated from the trust, who will be able to remove a trustee or appoint a successor trustee, if the creator can change the beneficiaries of the trust and other critical points for the operations of the trust during the creator’s lifetime and after death.
Part of the rules of the trust will include the distribution at the death of the creator. The trust says who will receive the assets at that time and how they will receive those assets. The distributions may be outright or in a further trust to protect the beneficiary from creditors or from losing government benefits they are receiving.
If there is real property owned by the trust, the document could also direct who may live there before and after death, who is responsible for the costs associated with the property and whether it should be sold upon the death of the creator.
Once the document is signed by the creator and the trustee(s), the next important step is to fund the trust. This means changing the ownership or title of certain assets to the name of the trust. It will make sense for a financial adviser and accountant, if you have either, to be aware of your trust and which assets you have placed into it. These advisers can work with you and your attorney to determine which assets to transfer into the trust and which to keep in your individual name.
Trusts are often funded with real property, bank accounts, investment accounts and savings bonds. All assets that are transferred into the trust are then managed by the named trustee. This trustee can sell the assets in the trust, collect rents or any other income and reinvest the assets in alternative ways. The precise powers that the trustee holds are dictated by the trust document.
A trust is a live entity that owns property and assets. It should be reviewed regularly, at least every five years, to make sure the trust rules are being followed and the trust continues to achieve your estate planning goals. Your trusted estate planning and elder law adviser should review these documents with you.
Nancy Burner, Esq. practices elder law and estate planning from her East Setauket office.