There are many things to keep in mind when you start to consider how your wealth will be distributed at the time of your death. Using a trust may give you many advantages and could help to dispose of your wealth in an efficient and timely manner.
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For those who have been able to accumulate a great amount of wealth, the federal estate tax is a large consideration when planning your estate. The federal estate tax, which has a 40% maximum rate, can significantly reduce the amount of wealth you leave to your loved ones. Although you can transfer all your wealth to your spouse tax-free, transfers to anyone else are potentially taxable. Fortunately, there are exclusions to the estate tax and gifts that you give throughout your life (see Estate & Gift Tax and Marital Deduction for more details.) Certain types of trusts, such as Generation-Skipping Tax (GST), Charitable Lead Trust, Charitable Remainder Trust (CRT) or Grantor Retained Annuity Trust (GRAT), could help you to minimize federal estate taxes and maximize the wealth you leave for those you care the most.
Revocable Living Trusts
A revocable living trust allows a trustee to distribute your assets, after you have passed away, outside of the probate process. This trust can make the distribution more expedient and less expensive. However, since in a revocable living trust you are acting as both the beneficiary and the trustee while you are alive, the assets won’t be protected against creditors because you retain ownership of those assets (see Does a Revocable Living Trust Provide Asset Protection in Minnesota?) While a revocable living trust has some value, viable asset protection strategies must be considered when deciding to create this trust.
Special/Supplemental Needs Trust
In certain circumstances, people with disabilities are eligible to receive public assistance through programs like Medical Assistance (Minnesota Medicaid) or Supplemental Security Income (SSI). However, a disabled person might become ineligible to receive such assistance if he or she receives assets from a deceased person. To avoid this situation, a person planning for the future should consider a Special Needs Trust or Supplemental Needs Trust. These are helpful tools that will allow a trustee to administer the assets of the deceased person to enhance the assistance to that disabled person without losing eligibility for publicly funded programs.
Medicaid Protection Trusts
In Minnesota, individuals and married couples may qualify for Medical Assistance coverage of nursing home and other long-term care costs. A Medicaid Protection Trusts allows one to transfer assets out of his or her estate to qualify for MA coverage. The assets conveyed to the trust principal would not be considered when calculating assets for purposes of qualification for MA benefits. The beneficiary named in the trust, such as children, or grandchildren, would receive the remaining assets upon the death of the person or both spouses. The income earned by the assets can still be received during the lifetime of the individual. However, there are some risks involved in the creation of this trust. There may be a period of ineligibility for benefits under the MA program, depending upon the value of the assets and date of transfer. Also, it is important to note the assets would be out of reach from the individual or spouses for the duration of their lives.
A Minnesota Trust Attorney will help you to accomplish your estate planning goals by finding the right trust instrument and tailoring it to your needs.