When people think about estate planning, they usually think about a will. A will is an important legal document that enables a person to designate who will receive their property on death. While a will is useful, it does have some significant drawbacks. First, for the designated beneficiaries to receive a distribution of property, the will must be probated in the Probate Court of the county in which the deceased lived a death. This can result in a delay in distribution of the assets. This delay is critical where the named beneficiaries of the will are relying on the funds to live. The second potential downside of will based estate planning is that it does not allow restrictions on how money is spent after death. For example, if parents make a will naming their two children, ages 18 and 20, to receive distributions on death, the children will receive the money outright on the death of the second parent./ The children may not have the maturity to handle a large sum of money and may squander the funds received.
A trust is a legal documented the separates the ownership of assets from the legal right to control such assets. A trust is formed by signing an agreement with a trustee to hold such assets and then delivering the assets to the trustee, either during life or by will on death. In our example with the young kids, the trustee could be provided with instruction to give the children a certain amount of money over specific time periods or for specific needs, such as education or the purchase of a home.
Trusts are also useful in qualifying for benefits to pay for long term care. Nursing home Medicaid and VA pension are two programs that provide significant funds for long term care planning. To receive benefits under these programs, the applicant must show a medical need for long term care, and meet asset and income thresholds. Trust based estate planning can be useful to transfer assets to qualify for long term care programs. There are very specific provisions that must be contained in the document for the transfer of assets to qualify, so any transfers should be made under the advisement of an experienced elder law attorney.