The idea of starting your estate planning can be nerve-wracking, especially if you are worried that it’s too late or that it won’t do any good. But whenever you start, you have options. Creating trusts as part of an estate plan can help you both before and after your passing. 

Trusts can help you qualify for Medicaid, allowing you to access the care you need and preserve assets for your family. They can also enable your family or business associates to access and manage assets immediately when you are gone. Otherwise, your partner, spouse, or children could have to wait weeks or months for resources they urgently need.

Once you know what you need, it is essential to work with an estate attorney in the Philadelphia/New Jersey area to make sure that any trusts you create are legally effective for you and your loved ones.

Why Trusts?

The creator of a trust, called the settlor or grantor, gives property to someone else, the trustee, to hold. The trustee keeps and maintains it for the benefit of other parties—the beneficiaries—named in the document creating the trust. That document, the trust instrument, specifies how the trustee should manage the trust property and when or whether they should distribute it.

When a settlor puts property in a trust, they no longer legally own it. For most purposes, the property is no longer part of the settlor’s estate. This can work to everyone’s advantage in estate planning, both during and after the settlor’s life.

Trusts and Medicaid: Asset Protection for You and Your Family

Few Americans, even affluent ones, have the personal resources to cover all expenses for long-term services and supports (LTSS) in their senior years. Even so, Medicaid has very low income and asset limits for senior applicants. As of this writing, a single person applying for Medicaid in PA or NJ may only be able to have as little as $2,000 worth of assets. 

Moreover, after a Medicaid recipient passes away, the state will file a claim against the estate to recoup the care expenses. Without adequate protection, this could consume almost all of the estate.

Luckily, this is avoidable with some long-term planning. With enough time, estate planners can use trusts to prevent significant losses, specifically:

• Medicaid asset protection trusts (MAPTs). Settlors can place funds, real estate, and some securities in a MAPT. After five years, the MAPT’s assets will not count towards the Medicaid asset limit. The MAPT will also protect the assets from Medicaid estate recovery after the settlor’s death.
• Qualified income trusts (QITs), also called Miller trusts. When a settlor has income deposited directly into a QIT, that income will not count towards the state’s income cap. Although the income in the QIT must be spent on medical expenses, the settlor and/or their spouse may receive an allowance from it first.

These trusts are irrevocable; the settlor cannot modify or end the trusts. Effectively, the settlor must give away the property. 

That is why long-term planning is key, especially for a MAPT. Aside from a few protected transactions, a Medicaid applicant who gives away major assets within five years—the “look-back period”—cannot receive Medicaid right away. They must wait for a penalty period to pass before they can receive benefits.

Probate and Trusts: Saving Time and Expense for the Estate

Aside from Medicaid concerns, trusts can sharply reduce the expense and delay of probate proceedings after your death. 

Without a trust, a deceased person’s estate has to pass through a will or, if there was no will, through estate administration. This requires waiting through the probate court process, which could mean weeks or months of delay and expense before your family can take title and manage your assets. 

Placing assets in a trust can allow beneficiaries to take control of the resources as soon as necessary. Family members can use funds from bank accounts; business associates can use movable assets—trust instruments can provide for almost any need. 

For estate purposes, this trust can be revocable. The settlor of a revocable trust retains the power to revoke the trust if they wish, but it has less power to protect assets from creditors or legal review. 

You can create a trust during your life—a living trust or inter vivos trust—but you can also create one in your will, a testamentary trust. Testamentary trusts only take effect when the will goes through probate. A will can leave some or all of the estate’s assets to a living trust, allowing the trustee to take control of management and distribution. This is called a “pour-over” will.

Planning a probate with trusts requires a bird’s eye view of all the issues that might arise, not only with Medicaid but also with the personal needs of your family and those close to you. 

Local Counsel—Local Issues

In order for a MAPT or, indeed, for any trust to be effective, you need to work with an estate planning attorney. What’s more, you will need an estate planning attorney who knows your area, as well as any other area in which you own property. Every state has its own laws for trusts, probate, and Medicaid asset recovery. In the Mid-Atlantic region, where so many of us live and work in more than one state, estate attorneys with wide experience are essential. 

At the Bratton Law Group, we handle Pennsylvania and New Jersey trusts, estates, and life care plans. Let’s talk about how we can help you and your family navigate the future. Call us today at 856-770-2744 to schedule an appointment at our most convenient office.