I am frequently asked whether a trust is necessary, and I give the most legal answer I know: It depends.
There are many different types of trusts, that serve many different purposes. They can shelter assets to reduce estate tax liability, protect privacy during the probate process, provide for responsible financial management of a minor child’s inheritance, set a person up to qualify for Medicaid, and more.
Here are the 4 most common types of trusts in Massachusetts:
- Marital Trust and Family Trust: This trust combination reduces or eliminates paying estate taxes. It is appropriate for couples who have over $1 million in taxable assets (including retirement accounts and life insurance).
- Trust for Minors: This trust allows parents to determine how their children receive their inheritance. They generally provide for the health, education, maintenance, and support of children until a particular age or until the trustee determines that the child is ready to receive the entire inheritance. This protects against the Massachusetts default trust rules, which give a minor child her entire inheritance at 18 years old, and it allows parents to choose the person who will manage the children’s funds.
- Supplemental Needs Trust, or Special Needs Trust: For beneficiaries who receive any type of government benefits, inheriting a large amount of money may jeopardize their benefits. Once their benefits terminate, they may have a difficult time re-qualifying once the inheritance has been “spent down.” A Supplemental Needs Trust only allows for the distribution of the funds when it won’t impact the beneficiary’s government benefits. They can provide for medical, educational, transportation, and housing needs that otherwise the beneficiary could not afford.
- Medicaid Planning Trust: This trust is for older Massachusetts residents who cannot afford long-term care insurance but who have enough assets to make them ineligible for Medicaid to pay for nursing home costs. A Medicaid Trust will allow for the preservation of some assets and set the person up for qualifying for Medicaid should they ever need nursing home care. This trust is beyond my skill set, so I refer people to Medicaid planning specialists, or the National Academy of Elder Law Attorneys.
If you’re wondering whether these trust should be part of your estate plan, reach out and let me know. I’m happy to analyze your financial familial situation, and make a recommendation tailored to your particular needs. You can see my fee schedule here: Estate Planning Fees.