There are a couple mistakes that people make when it comes to living trusts, and while it’s a popular estate-planning tool, it’s only effective when used properly. So before determining whether a living trust is right for you, here are two secrets you need to know.
1. Living trusts MUST be properly funded.
If you fail to transfer assets to your trust, it won’t be useful when you need it. Known as “funding,” this determines how your property is transferred after your death, and it’s common for many people to assume a lawyer will handle this step. While in some cases this may be true, you’re responsible for funding your trust by using one of the following methods:
- Declaring the transfer of ownership of your assets during your lifetime
- Making designations to place your assets in the trust upon your death
2. Living trusts WON’T protect your assets from long-term-care costs.
Not all trusts are created equal. Living trusts accomplish several estate planning goals, but they DO NOT protect your assets. Since the grantor is also the trustee, Medicaid correctly assumes that you still have access to any asset in the trust. This means it’s available for long-term care costs regardless of whether the asset is in your living trust OR your individual name.
A living trust can be a great way to avoid probate, minimize estate taxes, and distribute assets according to your goals, but it is has to be properly setup. If asset protection is your goal, then you will need a different type of trust. If you have questions about living trusts or other types of trust, contact me or any other attorney at AlerStallings. We’ll make sure you understand the secrets of living trusts or any other type of trust.