Monday, February 6, 2012

What does funding a trust mean?

     I find, and my colleagues all around the country report, that too often people set up lifetime trusts without funding them. They don't realize that merely creating a trust isn't enough, and that they need to follow the necessary steps to formally "fund" the trust. Funding a trust means actually placing money or other assets in a trust, generally by re-titling them in the name of the trust. To make sure that a living trust is funded during a person's lifetime you usually start the trust with ten dollars and then add other assets when you are ready. Additional assets may be added during your lifetime and/or assets may pour-over into the trust at death through your will. What you do to create a funding plan is based on advice from your attorney and any financial advisors.

     It also is possible (but not required) to provide that other people can contribute assets to the trust you set up. Those contributed assets will be divided among the trust beneficiaries in whatever way you determine when you set up the trust terms. The third party additions to the trust cannot change the trust terms or add additional terms, because it is your trust. You will already have established all of the terms, and someone adding to the trust if you allow additions will know what terms you have selected. You do not have to allow a third party to add to the trust, and the trust can contain whatever terms you decide on with your attorney as the best course for you. Whenever you are doing estate planning, no matter how large or how small your estate, it should reflect your goals and your values, and it is your wishes that count.

Friday, February 3, 2012

What is the difference between a living trust and a testamentary trust?

     As lawyers, we get so used to using terms that we often don't think to explain the terms we use. An example of this is when we talk about living trusts and testamentary trusts.

     A living trust is a trust that you set up and fund (at least partially) during your lifetime. This kind of trust comes into existence while you are still alive.

     A testamentary trust is a trust that you create through the terms in your will. Because a will has no effect until you die, a testamentary trust is not considered as being made during your lifetime even if you sign the will directing that the trust be set up at your death. You may want to create a trust in your will for tax purposes or because there are minor or disabled persons who may inherit from you or because you feel that one or more beneficiaries would not be able to manage the inheritance on their own.

     A really interesting aspect of testamentary trusts is that at times it is possible to accomplish objectives through a testamentary trust that cannot be accomplished through a living trust. For example, if you live in Virginia and are concerned that your spouse may need longer term care and you don't want your spouse's ownership of assets or receipt of an inheritance to pay for expenses that Medicaid could be expected to cover, you can set up a Special Needs trust that will be more effective if created in your will than if created during your lifetime.

     An elder law attorney can help you decide whether you need a trust and, if so, whether it should be a testamentary or living trust and what terms to include.

Wednesday, February 1, 2012

What is the difference between a revocable trust and an irrevocable trust?

     I often am asked this question, because it is a really important one to understand. Revocable trusts and irrevocable trusts have different purposes, and an estate planning elder law attorney can help you choose the type of trust you should have if you need a trust. Usually the reasons for creating a revocable trust include goals such as avoiding probate, providing privacy, discouraging wills contests, or providing for management of assets. On the other hand, the purpose of an irrevocable trust most often is to provide asset protection or to help a person be in a position in the future to qualify for government help with long term care expenses for which there is no health insurance. This may include planning for Medicaid or for Veterans benefits for Aid and Attendance for a Veteran or Veteran's widow.
     It is important to understand that a key difference between a revocable and an irrevocable trust is whether or not it can be changed by the person setting up the trust. When you set up a revocable trust you can change it or terminate it whenever you want (as long as you are competent). When you set up an irrevocable trust, by its nature, it cannot be amended or changed (except in very limited circumstances).

     An elder law attorney can help you decide whether you need a trust and, if so, whether it should be revocable or irrevocable based on your particular needs and circumstances.