When it comes to trusts and their potential benefits, a lot of people assume trusts are for “others” and don’t realize they may be ideal candidates for a trust that could help to protect their assets and avoid probate. Here are some of the most common misconceptions regarding trusts:
“I don’t want to lose control of my assets. Doesn’t someone else control the Trust?”
– Answer: Not necessarily. When setting up a Revocable or Irrevocable Trust, you can be the Trustee (the person who manages the trust). You can also choose other Co-Trustees, such as your spouse, child, or someone else you trust. You also choose who your successor trustees will be, and these people will take over the trust if you become incapacitated and after you pass away.
“Trusts are for rich people. There is no point in creating one if I’m not a millionaire.”
– Answer: False. In general, if you own property, have life insurance, and/or have other assets totaling over $150,000 (including life insurance and real property), you are a candidate for asset protection. The type of trust that will work best for you will vary depending on factors such as your age, general health, amount and type of assets, lifestyle, and goals.
“I don’t want to put all my assets into a trust and not have money to live and enjoy retirement.”
– Answer: You don’t need to! A well-designed estate plan will be balanced to allow for your individual lifestyle. The type of trust you set up can also allow for more flexibility. A Revocable Living Trust generally allows you to continue to use and access any assets and is primarily set up for the purpose of tax and probate avoidance.
In contrast, an Irrevocable Medicaid Trust restricts you from being able to take principal trust assets back directly and is designed to insulate your assets from nursing home costs. Assets in this type of trust are, however, able to be used to fund costs and expenses of real property also within the trust, such as mortgage payments, taxes, or repairs. The primary assets that go into this type of trust are usually more passive, such as real estate, life insurance, and other funds that aren’t relied upon to fund everyday life. This type of trust should be set up to leave enough assets outside of it so that you can continue to enjoy your hobbies and pursuits and an active retirement.
“Can my children or other beneficiaries take assets from the trust?”
– Answer: Generally no, unless you have named them as a Trustee with that power. You, as the Trustmaker, typically retain control over any assets you gift someone during that person’s lifetime. You can also impose restrictions on assets being distributed after your death, such as setting a minimum age for minors to inherit 25 or 30 years old. If you are worried about a beneficiary being financially irresponsible, you can choose to impose further restrictions on your assets or appoint other trustees to oversee funds going to that person.
It’s important to keep in mind that trusts should be created for your individual needs. Everyone has different situations when it comes to assets, lifestyle, and health, so a trust needs to be tailored to fit your situation and give you peace of mind that your assets will be protected and your loved ones provided for after you have passed away.
For help creating your estate plan or in areas of Elder Law, contact us at Wilson and Wilson Estate Planning and Elder Law, LLC at 708 482 7090 for our main office in LaGrange, Illinois or at 847 656 8958 for our Northbrook, Illinois office.