Are you finally getting around to creating your estate plan? Do you already have an estate plan that needs to be updated because both you and your estate have grown since you created your plan? If so, you will need to decide what estate planning tools and strategies to add to your plan in order to achieve all of your estate planning goals. Of course, your estate plan is as unique as you are, and should reflect your individual needs and objectives. No two estate plans will ever be exactly the same giving the personalized nature of estate planning. There are, however, some commonly used estate planning concepts and strategies that you may wish to consider using in your estate plan. A living trust, for example, is a popular addition to any estate plan. While you should always consult with your Illinois estate planning attorney before making any decisions relating to your estate plan, it might be beneficial to learn more about three living trust benefits.
Trust Basics – the Elements
Before contemplating the benefits of a specific type of trust, it is important to have a basic understanding of trusts in general. All trusts must have the following five elements:
- Settlor – also known as a “Grantor” or “Maker,” this is the person who establishes the trust – you, if you decide to create a trust for your estate plan. Sometimes the Settlor is also a beneficiary or Trustee.
- Trustee – appointed by the Settlor, the Trustee is responsible for managing trust assets and administering the trust terms.
- Beneficiary – every trust must have at least one beneficiary who will receive the benefits of the trust. A beneficiary may be a person, an organization or entity, or even a family pet. Beneficiaries may be current and/or future.
- Terms – created by the Settlor, the trust terms determine how trust assets are managed and invested as well as when the trust assets are distributed to beneficiaries and how much is distributed. Trust terms can be just about anything as long as they are not unconscionable or illegal.
- Funding – assets used to fund a trust may be just about anything, including cash, stocks or bonds, real or personal property, or proceeds from a life insurance policy.
There are two basic types of trusts – testamentary and living. A testamentary trust becomes active upon the death of the Settlor while a living trust activates upon the creation of the trust during the lifetime of the Settlor. Living trusts can be further divided into revocable and irrevocable living trusts.
There are virtually an endless number of trust benefits that might provide the incentive for you to include one in your estate plan. Among those benefits are:
- Medicaid planning – as a senior, you may need to qualify for Medicaid to help cover the high cost of long-term care. Your assets will be at risk, however, when you apply unless you have planned ahead by including Medicaid planning in your estate plan. As part of your Medicaid planning component, you will likely create a specialized type of irrevocable living trust known as a “Medicaid trust” that removes those assets from your estate, thereby protecting them so they can be passed down to loved ones and ensuring your eligibility for Medicaid benefits.
- Incapacity planning – a revocable living trust can provide you with incapacity planning benefits by allowing you to appoint yourself as the Trustee and a trusted friend/family member/loved one as the successor Trustee of the trust. Assets are then transferred into the trust where you continue to control them as the Trustee. If you suffer an incapacitating event, control over the trust assets automatically shifts to your chosen successor Trustee.
- Special needs planning – if you wish to provide supplemental care — above and beyond that provide by assistance programs such as Medicaid and SSI — for a child with special needs, you will need to create a Special Needs Trust. Also referred to as a “Supplemental Needs Trust,” this is a special type of irrevocable living trust that is recognized by state and federal assistance programs. Using Special Needs Trust is necessary because making direct gifts to your child could adversely affect his/her eligibility for assistance programs.
If you have questions or concerns regarding living trust benefits, contact the experienced Illinois estate planning attorneys at Nash Bean Ford & Brown, LLP by calling 309-944-2188 to schedule your appointment today.