Trusts are one of several options to consider when making your estate plan. There are different types of trust available that you can use to achieve particular goals.
The primary purpose of putting property into a trust is to protect it. From whom do you need to protect it? That depends. Here are some examples:
The state and Medicaid providers
A special needs trust helps you protect your child from the state and Medicaid. If those two had their way, they would take most of the assets you wish to leave your child to pay for any healthcare they need. By placing the assets in a trust, you help retain your child’s eligibility for benefits. You also protect yourselves and the rest of your family. Without this trust, you and your other children could see all your assets taken to pay for care for the one child with special needs.
Why do you need to protect your estate from your heirs? Usually, you do not, yet sometimes, your kids may not be ready to inherit what you want to leave them. For instance, if you know the first thing your son will do is buy a red Ferrari and take his mates to Tijuana for a month, you may decide to put the money in a trust with a rule that he only gets his inheritance once he turns 50.
Your daughter has married someone you fear is after her money. If you passed her cash, her spouse may manipulate her out of it all and disappear. If you put money in a trust, you could set it up so she only receives a limited amount each year.
Trusts remove assets from your estate, making it less likely you reach the point where the IRS imposes federal estate tax when you die. Not everyone needs or wants a trust. Finding out more can help you make the correct decision.