Estate planning requires comprehensive solutions that can cater to a diverse set of circumstances. There is no one-size-fits-all approach, and specific scenarios call for unique solutions. This post will delve into five different situations requiring tailor-made estate planning strategies.
Addressing Special Needs
Individuals with disabilities often rely on Medicaid for health insurance and may be eligible for Supplemental Security Income (SSI). As these are need-based benefits, one cannot qualify if they have significant assets.
Leaving a direct inheritance to someone enrolled in these programs could lead to a loss of eligibility. However, a supplemental needs trust can be a viable solution. This trust allows the trustee to use the assets in the trust to meet the beneficiary’s unmet needs while maintaining benefit eligibility.
Medicaid must seek repayment from the estates of beneficiaries upon their death. If you create a trust for a person with a disability using your funds, this will be a third-party supplemental needs trust. You would name a successor beneficiary who would inherit any remaining assets after the death of the first beneficiary, without Medicaid being able to claim these funds.
Alternatively, a person with a disability could establish a supplemental needs trust using their own assets. However, Medicaid could claim the remainder of these assets after the grantor/beneficiary’s death.
Estate Tax Considerations
Accumulating wealth brings its own challenges, one of which is the federal estate tax. The tax can be levied on any part of an estate exceeding $12.92 million, with a maximum rate of 40%. To mitigate exposure, trusts such as qualified personal residence trusts, grantor retained annuity trusts, charitable lead trusts, irrevocable life insurance trusts, and generation-skipping trusts can be used.
An incentive trust can be used to encourage beneficiaries to meet certain stipulations before they can access their inheritance. For example, if you are leaving a bequest to your grandchild, you can instruct the trustee to cover all expenses while the beneficiary maintains good academic standing. Additional incentives could be offered for attending graduate school, or the trust could match the money the beneficiary earns at work.
Planning for Pets
For the elderly community, pet ownership can provide companionship and alleviate loneliness. Any concern for the pet’s care after the owner’s death can be mitigated with a pet trust. With such a trust, you can specify how you want your pet to be cared for, and the trustee would be legally obligated to follow your instructions. Upon the death of the pet, any remaining assets would go to a named successor beneficiary.
Nursing Home Asset Protection
You may assume that Medicare will pay for a stay in a nursing home since it is designed to satisfy the needs of senior citizens. In fact, nursing home care is considered to be custodial care, which is not covered under Medicare.
Since long-term care expenses are exorbitant, this is a very big deal. Fortunately, there is a solution in the form of Medicaid. You can create an eligibility plan that centers around the utilization of an irrevocable, income-only Medicaid trust.
Here’s a brief explanation. Assets that you conveyed to the trust would not count if you apply for Medicaid. However, you can receive distributions of the trust’s earnings until and unless you apply for Medicaid coverage.
You have to fund the trust at least five years before you apply for Medicaid because of the look-back period. However, since many people rely on the income that is generated by their savings, you may have no intention of spending the money. As a result, parting with direct access to the principal would not be an issue.
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