Using Irrevocable Trusts in Medicaid Planning

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People often wonder about the value of using irrevocable trusts in Medicaid planning. Certainly gifting of assets can be done outright, not involving an irrevocable trust. Outright gifts have the advantages of being simple to do with minimal costs involved, including the cost of preparing and recording deeds and the cost of preparing and filing a gift tax return. Many financial institutions have their own documents they use for changing ownership of assets so there are typically no out-of-pocket costs for the transferor

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Private Charitable Foundation

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Instead of giving all that tax money to Uncle Sam after you die and letting Congress decide how to spend it, you can set up your own charitable foundation, donate your assets to it and keep some control over how the money is spent! (The IRS does have a few restrictions on how the money is used.)

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Grantor Retained Annuity Trust (GRAT) and Retained Unitrust (GRUT)

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GRATs and GRUTs have much in common with the qualified personal residence trust. The main difference is that a GRAT or GRUT lets you transfer any asset (not just your home) out of your taxable estate. And, with a GRAT or GRUT, you receive an income, instead of continuing to live in your home, for a set number of years.

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Family Limited Partnership

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A family limited partnership lets you transfer assets like a family business, farm, real estate or stocks to your children now, yet you keep full control. Because you are removing these assets and any future appreciation on them from your taxable estate now, you reduce the amount of estate taxes that will have to be paid after you die. A family limited partnership is especially useful as a preventative measure when real estate or a family business might otherwise have to be liquidated to pay estate taxes.

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Offshore Asset Protection Trust

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Because malpractice and liability insurance costs are so high -- and lawsuits so common -- some people have turned to offshore asset protection trusts as a way to protect their assets and still keep control. (Recently, several states including Alaska, Delaware and Utah have changed their laws and now allow similar trusts here in the U.S. These trusts, called domestic asset protection trusts, operate differently from the offshore trusts described here.)

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Generation Skipping Transfer Tax

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If some or all of your estate bypasses your children and goes directly to a grandchild, there could be another tax called the generation skipping transfer tax (GSTT). This can happen intentionally, if you "skip" the living parent (your child) and leave an inheritance directly to your grandchildren.

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Naming A Beneficiary For Your IRA

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While you should start with the general premise that all titles and beneficiary designations should be changed to your living trust, there are a few assets that you may not want in, or cannot be placed into, your living trust. Here are some you may own. 

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Understanding Corporate Trustees

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A corporate trustee is a bank trust department or trust company. They can help you build, manage and protect your wealth when you put your assets in a trust.

A trust is simply a legal document that lets you reduce unnecessary legal fees, save taxes and keep control over your assets while you are living, if you become physically or mentally incapacitated, and after you die.

When you set up a trust, you need to name someone (a trustee) to manage the assets your trust controls. While you can choose just about any adult, there are very good reasons why you should consider a corporate trustee.
 

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Charitable Remainder Trusts

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A CRT lets you convert a highly appreciated asset (stock, real estate, etc.) into lifetime income. It reduces your income taxes now and estate taxes when you die, and you pay no capital gains tax when the asset is sold. Plus, it lets you help a charity(ies) that has special meaning to you.

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Understanding the Duties and Responsibilities of a Successor Trustee

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If you have been named as the successor trustee in someone's living trust, you may be wondering what you are supposed to do. You can relax a bit, because you don't do anything right now. You will only begin to act when the person becomes unable to manage his or her financial affairs due to incapacity, or when he or she dies.

However, it is important that you know ahead of time what your duties and responsibilities will be. These FAQs will help. Let's start with some explanations.

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