People in different social situations and stages of life will have very different estate planning needs. For example, a new adult preparing to leave for college may primarily require powers of attorney and healthcare directives in case of a medical emergency as they have neither dependence to provide for nor assets to distribute.
Those preparing for retirement will need to create or update their plans with an eye on budget constraints and the possible need for state benefits in the future. At many stages in life, adding a trust to an estate plan can be a smart decision. People create trusts for many reasons, but the three below are among the most common.
To avoid taxes or debt collection activity
Retired adults sometimes find themselves in a terrible situation. They have a medical issue or household emergency that leaves them in considerable debt. However, they live on a fixed income and cannot add new bills to their monthly budget. Creditors eventually take them to court, putting liens against their property and worsening their financial situation.
Moving assets into a trust long before facing creditor claims will help you protect those assets from future claims. For those in the opposite situation, with an estate worth millions of dollars and possibly subject to major estate taxes, moving assets into a trust could reduce or even eliminate the estate taxes someone will have to pay.
To qualify for Medicaid
Medicare is available for most retired adults, but it won’t pay for all of the needs of older adults. Those who need nursing support in their homes, lengthy stays at rehabilitation facilities or a bed in a nursing home will either have to pay for that care themselves or apply for Medicaid. Medicaid will look back at years of financial transactions, but moving assets into a trust long before you apply can help you qualify when you need help.
To avoid probate litigation
Maybe you have two children who have always fought with one another. Perhaps you have left most of your assets to charity and worry that family members will try to challenge your wishes. Trusts are generally harder for people to challenge in probate court and therefore an excellent tool for those who worry about conflict during probate proceedings.
Understanding why people add trusts to their estate plans can help you decide if a trust might be an appropriate tool for your purposes.
