Setting You Down The Right Path

3 ways a trust helps those trying to plan their legacies

On Behalf of | Jun 7, 2021 | Estate Planning

Trusts are tools that allow people to change the ownership of certain possessions from an individual to the trust itself. For many years, trusts were primarily used by those with significant holdings that they wanted to leave for family members or set aside for charity.

While it is true that affluent people benefit from trusts, middle-class Americans can make great use of them as well. More and more people with decent jobs, property like a home, and a family choose to use trusts as part of their estate plan. There are many reasons that an individual may decide to create a trust, but the three below help demonstrate exactly why trusts have become so popular.

  1. They protect heirs from the effects of inherited wealth

Receiving an inheritance can benefit someone, but it can also do a lot of harm. For individuals who depend on government benefits for some of their needs, such as Medicaid to cover expensive medical treatment, an inheritance could mean losing those government benefits. It might be years before someone who inherits a large amount of money can resume receiving those government benefits.

What inheritance they receive might wind up consumed by costs that would have otherwise gotten paid by insurance. A large inheritance can also put someone at risk for financial abuse or manipulation from those who want access to the inheritance.

A trust can help someone avoid these challenges. Those planning on leaving an inheritance for a loved one who is receiving government assistance may wish to consider setting up a special needs trust.

  1. A trust helps older adults qualify for benefits themselves

Your beneficiaries aren’t the only people whose benefits status depends on the assets that they have. If you might eventually require Medicaid to cover nursing home care or other major expenses as you age, a trust can help you qualify without requiring that you spend every cent of your own money on medical care first.

Given that the government can review your financial transactions going back five years from the date that you apply, the sooner you plan to qualify for Medicaid, the more beneficial that planning becomes.

  1. A trust helps when you have complicated family situations

If your loved one has a serious issue with addictions, an inheritance could endanger their well-being. It is understandable for you to be concerned about how they will spend their inheritance. That does not mean you have to disinherit them.

A trust can be the perfect tool to leave some support for them while ensuring that they do not use those resources for the wrong purposes. You can determine how much someone withdraws at once or even ask the trustee to manage paying bills or educational expenses on behalf of beneficiaries.

Trusts can also help protect your property, including your home, from creditors or Medicaid and helps minimize the risk of your heirs needing to pay estate taxes. Creating an estate plan that integrates a trust can give you more options about how you manage your legacy.