Some people only include one document in their estate plans. They use a simple will and nothing else. Wills are effective for naming beneficiaries for specific assets and appointing guardians for minor children. However, they certainly have their limitations.
There are multiple kinds of trusts that can help protect both the testator and the beneficiaries of their estate. Individuals in a variety of personal circumstances may benefit from adding a trust to their estate plan. Are you one of them?
Do you have debt?
If you have credit card debt or tens of thousands of dollars in student loans, you don’t want to burden loved ones with those bills when you die. Even if you don’t have much debt now, you could after a car crash or similar medical emergency that claims your life. A trust is a way to protect some of your property from creditor claims by keeping it out of probate court.
Do you think you will need Medicaid?
If people in your family tend to live quite long or if Alzheimer’s disease runs in your family, you may have reason to worry about needing nursing home care as you grow older. It can be difficult to qualify for Medicaid as soon as you need it without advanced planning as there are strict limits on both your income and your total personal property.
With the exception of your home, most anything you own can count against you when you apply for Medicaid benefits. Adding a trust to your estate plan will both make it easier for you to qualify for Medicaid when the time comes and will help you protect your assets from Medicaid estate recovery efforts after you die.
Could your estate potentially trigger estate taxes?
If you have a multi-million dollar estate, the property that you intend to pass to your children or other loved ones could be worth enough to trigger estate taxes. Trusts are a powerful way to minimize estate tax risks by changing the ownership of certain assets and therefore diminishing your personal holdings.
Are your loved ones ill-suited for an inheritance?
Maybe you have young children who will be your main beneficiaries. Perhaps your children are grown, but one of them has an issue with drug addiction or alcoholism. A trust can be a way to prevent the misuse of an inheritance by limiting when someone can access inherited resources and controlling what they use those assets to do.
If you have specific estate planning wishes or financial concerns that might affect your estate, adding a trust to your estate plan might be a wise move. Learning more about the different estate planning tools can help you choose the best options for your goals and circumstances.