Ever feel tangled in the complex web of trusts and estate planning? Fear not, we've got your back! In this enlightening episode, we layer back the mystique of trust drafting, diving straight into the heart of revocable living trusts, irrevocable trusts, and the stealthy convertible trust. We take a magnifying glass to the unique features nestled within each type, demonstrating how you can harness them to serve your specific needs. You'll see how an irrevocable trust, despite its sturdy exterior, can protect your assets while still allowing you to draw an income, all under the watchful eye of a trusted fiduciary.
Turning the page to estate planning, we illustrate the sheer power of a trust in your estate plan. Want to talk to an estate planning and elder law attorney for free? We share the golden path to free legal advice and set the stage for what to expect during a no-strings-attached consultation with an attorney about your estate plan. We also dispel common concerns about irrevocable trusts, bringing to light the concept of a convertible trust - the Swiss army knife of trusts, boasting the adaptability of a revocable living trust with the protective armor of an irrevocable trust. Get ready to conquer the world of trusts and estate planning! Tune in, sit back, and enrich your knowledge.
So let's move on to trust. We get a lot of questions about trust. We do a lot of trust drafting we do. Okay, so let's talk about trust today. What is a revocable living trust? We'll talk about revocable living trust, irrevocable trust, and then, can we have the best of both worlds, we'll call that a convertible trust, okay, and we draft a ton of different types of trust. Those are three, right?Speaker 2:
Let me set the stage here just a little bit before we get into trust. A goal that we have again is not for you to give up control. Okay, because if I just gave my house to a child, I have no recourse, whereas if I name somebody as power of attorney, they might have the power to act on my behalf, but there's recourse there. They have a fiduciary duty. Okay, and remember that when we start talking about trustees. Okay, but the question is what is a revocable living trust? Well, what is a trust? In general, a trust is a pot where you can put anything that you own. So think of it as you're creating this legal entity, this pot, and it can hold anything that you own, and anything that you own that's in that pot avoids probate. That means that it passes immediately to a loved one. Whoever you name is a beneficiary. Now you know people are confused about the interplay between a trust and a will. A will can leave things to a trust as an heir Okay, but other than that, the will and the trust are totally separate and apart. The trust controls only what's in it or what's being left to it, and the trust can have terms of distribution, just like a will. So if I want to leave 80% of my trust estate to Bob, I can do that. If I want to leave 20% to Sally, I can do that, just like you can in a will. So in a revocable living trust, that's a trust that I set up, where I am the creator of the trust, also known as a grantor, set law and I have total power and dominion over the trust and its assets. So think of creating a company, and I founded it. I'm the president and CEO. I control the thing. Same thing with a revocable trust I can take things out, put things in as I wish, I can change it and I have total power over it. So that's a revocable living trust.Speaker 1:
And the trust things that are in the trust and a revocable living trust, they do not go through probate, correct? Right Pass immediately to a loved one upon your death and are things that I place in a revocable living trust. Is that protecting my assets if I need a long-term care benefit to pay for long-term care?Speaker 2:
So if we talk about protection, one of the questions is does the asset that you own, that you have in your name or in your trust name, count as an asset against you if you're trying to qualify for much needed benefits to pay for long-term care? And the answer is anything that's in a revocable trust still counts as yours Because you can have all the power and control over it Because I've got my hand in that cookie jar.Speaker 1:
Yeah, exactly, I can take a cookie out and put cookie in.Speaker 2:
Those are your cookies, right.Speaker 1:
So the government, they count that as my asset.Speaker 2:
That's right. That's right, and as they should. Yeah, as they should. Yeah, it makes sense. You have all control over it Right, whereas in an irrevocable trust.Speaker 1:
Right, let's say a Medicaid asset protection trust, a highly specialized trust, right, right, or any. How about a basic, irrevocable trust? And we do draft a lot of Medicaid asset protection trust, right, right? That would mean you were the settler, the trust maker, the grantor. The same thing, right, you made the trust, but you can't be the trustee if you want to fully protect it from that long-term care situation. You know your spouse yeah, that's correct. So you know your spouse. And? But you know what? I can still draw income. I could be the lifetime income beneficiary. Yeah, if I have investments, rental properties, that income can still flow to me. Right, that's what I can still take.Speaker 2:
And I get to pick who's trustee other than me, other than my spouse.Speaker 1:
It could be a child of mine, you're my son yeah, it was the trustee right, and my son might be the other lifetime income beneficiary Right, so that if I need a benefit like long-term care Medicaid, the trustee my son can cut off that income to me and so income doesn't build up in the trust and tax at the trust tax rate can still flow that income to my son at that point, so that income isn't counted as my income to pay for long-term care, which is helpful, very helpful to get me under an income limit for the benefit.Speaker 2:
And there are some hesitations sometimes with folks in the irrevocable trust because, again, a lot of people don't want to give up control. It's kind of funny, though, as I noticed, that some people are willing to kind of transfer the house, but, you know, kind of have some trepidation to do an irrevocable trust. And it should be the opposite, because here's the thing that you're doing You're appointing somebody as a trustee. They're in a trusted position, they have a fiduciary duty. They have to act in your best interest and the best interest of the trust. Here's the other thing. If I were to tell you Greg, hey, I'm going to start a game with you, we're going to play a game, I create all the rules of the game beforehand. Okay, I can't change the rules once we start playing, but I get to you know, set up all the rules beforehand. How much control over that game do I have?Speaker 1:
I have the ultimate control because I set the rules of the game and the only thing the trustee does is has to abide by my rules. They cannot go outside of those rules.Speaker 2:
They have a legal fiduciary duty preventing them from going outside of the rules and despite you know that protection, that measure of control you still might have in an irrevocable trust. It might not be time for everyone to have an irrevocable trust in place and sometimes, even though it may be time, folks don't want to give up that control right. No matter how much you know information we can give them, no matter how much you know solace we can bring with respect to how it works, sometimes they don't want to give up control. So, you know, is there a middle ground that we can reach here for folks?Speaker 1:
I think so. What if I had a? What if I could start off with a revocable living trust and then, anytime I wanted to flip a switch to make that trust irrevocable and activate those Medicaid asset protection trust elements. So I could have one trust and I could have it convert to be irrevocable if it was threatened, if the assets were threatened, if I was in a situation where I might need long-term care.Speaker 2:
Yeah. So what I'm imagining when you're telling me this is like a bank vault that's open, where you can go in and get your money, that sort of thing, and then if the bank robbers try to come in, steal the money out of there, the vault door shuts. You turn the big whatever that thing's called like a knob and then, yeah, you spin the thing and then it's locked right. So I'm imagining that. Is that how that trust, is that how that works?Speaker 1:
That's how a convertible trust works.Speaker 2:
Yes, absolutely, can you still get money out of it? Is it just the irrevocable trust that we talked about?Speaker 1:
Exactly the same. You can be the lifetime income beneficiary and the other beneficiaries can pull principal out if they need to, for, say, mom or dad, for anything they need.Speaker 2:
Right Now. I get this question all the time If there's money or property in a trust let's just say real property in a revocable or irrevocable trust can we still sell that?Speaker 1:
You can sell it and the beauty of having it in an irrevocable trust status is that if I sell the property, I have the flexibility of selling the property and the money and the check from the closing is cut to the trust. So it goes in a trust account that you open at the bank right that might be investments that I get income off of, so that money is does not become unprotected when it's converted from real property to cash.Speaker 2:
So wonderful planning tools, trust, avoid probate. They can be used to protect assets to avoid long-term care claims and are great in long-term care planning as well as tax planning right, increasing the taxable exemption of the estate and death tax right deferring tax. There's many really cool things that you can do. With a trust, you can really write your own story well beyond your death, even right. I would like to offer a free consult to sit down with an attorney and review your estate plan and talk about what tools and estate planning would be right for you. You can take advantage of that free consult by going to mclderlawcom that's MSMIKE CSNCHARLYELDERLaw COM, or calling 1-888-999-6600. And thank you so much for joining us today.