On August 26, 2013

An excerpt from an upcoming book on probate and living trusts from JR Phillips & Associates. Giving people information so they can make informed decisions about their estate planning.

3. Assets placed in a Living Trust are protected from creditors and Medicaid. This is patently untrue. A Living Trust is known as a “self-settled” trust where you cannot give yourself any protection from your own creditors. If you can get to the assets, so can they.

In applications for Medicaid, all assets in a Living Trust, as well as any assets in any trust that can be used for the applicant’s benefit are counted as assets toward the maximum allowed to qualify for Medicaid benefits. In some states, such as Colorado, the very existence of a Living Trust will generally cause an automatic denial of benefits.

Some overly aggressive lawyers and some “Trust Mills” promote Medicaid Trusts, or “5-Year Trusts” as schemes to keep assets while artificially qualifying for Medicaid. There are legitimate tools and techniques to avail oneself of Medicaid benefits while taking advantages of all that the law allows. Many are much more effective, and generally less costly that these promoted products. True Medicaid planning is complicated and involves a number of difficult issues and choices. There is no “Magic Bullet” or “Magic Beans” that work well for anything other than providing profit to the salesman.

4. Signing trust documents is enough. The biggest mistakes encountered most often with Living Trusts, is that the owner(s) (technically the Grantor(s)) do not properly fund the Living Trust, and/or do not keep them funded.

A Living Trust can control only those assets which are legally owned by the Living Trust. Just signing a Living Trust does not automatically vest legal title to any asset in that trust. It is necessary for the owner (Grantor) to go to the trouble to move each and every asset to trust ownership.

For real estate interests, this is accomplished with a Deed (Warranty, Quitclaim, of other type) properly drawn up, executed, and recorded with the Clerk and Recorder of the county, in the state, where the property interest lies. This is technical, and gives many opportunities for errors (all of which will be costly to fix later.).

For non-real estate assets (such as bank accounts, investment accounts, business interests, etc.) each asset must be transferred according to the appropriate method as is typically used by the business community for creation and transfer of each type of asset. Different institutions (banks, investment houses, etc.) may have different rules and procedures to properly move the title ownership into the Living Trust.

Over the years, as you move assets, open or close accounts, buy or sell real estate interests, etc. it is incumbent on you, the owner of a Living Trust, to keep all assets titled properly. Tell-tale signals that you may not have done this correctly are:

– The existence of POD (Payable on Death) or TOD (Transfer on Death) designations;

– Beneficiary Designations for assets other than Retirement Plans, certain Annuities, or Life Insurance.

– Property of any kind in Joint Tenancy

Categories: Trusts

Tags: , ,