Using Trusts to Maintain Control of Inheritances

Trusts, like estate plans, are not just for the wealthy. They are used to provide control, in how assets of any size are passed to another person. Leaving an inheritance to a beneficiary in a trust, according to the article from Times Herald-Record titled “Leaving inheritances to trusts puts you in control,” can protect the inheritance and the asset from being mishandled.

For many parents, the inheritance equation is simple. They leave their estate to their children “per stirpes,” which in Latin translates to “by roots.” In other words, the assets are left to children according to the roots of the family tree. The assets go to the children, but if they predecease you, the assets go to their children. The assets remain in the family. If the child dies after the parent, they leave the inheritance to their spouse.

An alternative is to create inheritance trusts for children. They may spend the money as they wish, but any remaining assets goes to their children (your grandchildren) and not to the surviving spouse of your child. The grandchildren won’t gain access to the money, until you so provide. However, someone older, a trustee, may spend the money on them for their health, education and general welfare. The inheritance trust also protects the assets from any divorces, lawsuits or creditors.

This is also a good way for parents, who are concerned about the impact of their wealth on their children, to maintain some degree of control. One strategy is a graduated payment plan. A certain amount of money is given to the child at certain ages, often 20% when they reach 35, half of the remainder at age 40 and the balance at age 45. Until distributions are made to the heirs, a trustee may use the money for the person’s benefit at the trustee’s discretion.

The main concern is that money not be wasted by spendthrift heirs. In that situation, a spendthrift trust restricts payments to or for the beneficiary and may only be used at the trustee’s discretion. A lavish lifestyle won’t be funded by the trust.

If money is being left to a disabled individual who receives government benefits, like Medicaid or Supplemental Security Income (SSI), you may need a Special Needs Trust. The trustee can pay for services or items for the beneficiary directly, without affecting government benefits. The beneficiary may not receive any money directly.

If an older person is a beneficiary, you also have the option to leave them an “income only trust.” They have no right to receive any of the trust’s principal. If the beneficiary requires nursing home care and must apply for Medicaid, the principal is protected from nursing home costs.

An estate planning attorney will be able to review your family’s situation and determine which type of trust would be best for your family.

Reference: Times Herald-Record (Feb. 16, 2019) “Leaving inheritances to trusts puts you in control”

Good Planning Avoids the Devastating Costs of Long-Term Care

If you don’t have a plan for long-term care, welcome to the club. However, you may not want to be a member of this club, if and when you need long-term care. A recent report from the U.S. Department of Health and Human Services found that people age 65 and older have a very good chance—70%—of needing long-term care. Despite this, most people are not putting plans in place, according to an article from Westfair Online titled Keybank poll reveals clients aren’t planning for long term care.”

This is true for people with assets exceeding $1 million and for people with more modest assets. In a study by Keybank, fewer than a quarter of high net-worth clients had plans in place for long-term care. This poses real financial risks, to the individuals and their families.

Consider the costs of long-term health care. One study from Genworth Financial reports that in 2017, the national median cost of a home health aide was roughly $49,000 a year, assisted living facilities could cost $45,000 (that’s not including medical services), and a private room in a nursing home came close to $100,000 annually. Costs vary by region, so if you live in an expensive area, those costs could easily go much higher.

Why don’t people plan ahead for long-term care? Perhaps they think they will never become ill, which is not the case. They may think their health insurance will cover all the cost, which is rarely the case.  They may believe that Medicare will cover everything, which is also not true.  We have seen cases come in the office where mom or dad didn’t plan and ended up spending all of their assets on long-term care.  No legacy was left to the kids.  Very sad.

Everyone’s hope is that they are able to be at home during a long illness, or during their last illness. However, that’s often not a choice we get. This is a topic that families should discuss well in advance of any illness. Talking with family about potential end-of-life care and decisions is important for setting expectations, delegating responsibilities and avoiding unpleasant surprises.

The other part of a long-term care discussion with family members needs to be about estate plans and decisions about the disposition of assets. Everyone should have a will, and all information including deeds, trusts, bank and investment accounts and digital assets should be discussed with the family. You’ll also need a power of attorney and health care proxy to carry out your wishes. An experienced estate planning attorney can help create an estate plan and facilitate discussions with family members.

Long-term planning is an on-going event. Life changes, and so should your long-term care plan, as well as your estate plan. You should also keep communications open with your family. They will appreciate your looking out for them before and after any illness.

Reference: Westfair Online (Sep. 7, 2018) Keybank poll reveals clients aren’t planning for long term care