As you plan for your or your loved one’s needs, what steps should you be taking to protect assets? Should you set up a trust and if so, how do you know what kind of trust is right for you?
There are many different kinds of trusts which serve different purposes. Testamentary trust are created in a Will and do not hold any property until the person passes away. Living trusts are created during lifetime and property is transferred into the trust right away. Trusts are not one size fits all; some trusts serve to reduce or eliminate estate taxes, others are designed to avoid probate, such as when property is held in another state, and an irrevocable trust serves to protect assets for Medicaid eligibility purposes.
In order to protect assets, a living trust must be irrevocable. You or your loved one, as the creator of the trust, cannot have access to the principal of the trust but can maintain the right to receive income (dividends, interest, etc.). Any type of asset may be held in a trust, such as cash, title to the home, bank accounts, CDs, stocks, brokerage accounts, mutual funds and annuities. Once five years pass, the assets held in the trust are protected; those assets will not have to be spent down on the cost of care but instead will pass to heirs and beneficiaries.
Planning ahead to protect assets is always smart but the strategy will be different depending on your or your loved one’s age, health, family composition, and total assets. It is never too early to plan and establishing an asset protection trust can be the first step.