Trusts Attorneys Assisting Clients in Hot Springs, Arkansas, and Surrounding Areas
Trusts can be a very important part of any comprehensive estate plan, yet they can be difficult to understand. There are many different kinds of trusts, and deciding which one(s) might be best for your situation can be a daunting task. Whether you are looking for tax relief, asset protection, or a secure way to provide for loved ones in the future, there may be a trust that can help you meet your goal. The skilled Hot Springs estate planning attorneys at Dudeck Law Firm have years of experience helping clients set up trusts to serve their needs. Our focus is on estate planning and elder law, and we take pride in helping families provide for their loved ones even after they are gone. Call Dudeck Law Firm today at 501-327-3527 to start protecting your family’s future.
What Exactly is a Trust?
A trust is a financial instrument into which a person (the grantor or settlor) can place assets, effectively changing the ownership of the asset from the individual to the trust. There can be many reasons that this could be a beneficial strategy. If a person is trying to qualify for Medicaid, for example, it could be beneficial to have assets in a trust both to bring the total assets down to the allowable level and to protect the assets from a seizure after the individual’s death by the Medicaid Estate Recovery Program, which seeks to seize assets and liquidate them to repay the Medicaid benefits a recipient received. Please note, however, that there is a 5-year look-back period for Medicaid, so the assets need to have been put into a trust at least 5 years prior to the Medicaid application. Another reason to place assets into a trust might be to protect them from creditors or monetary judgments. Because the trust would be the owner of the assets and not the individual, those assets would not be available to anyone suing the individual for damages. Other reasons for having trusts include reducing estate or inheritance taxes, simplifying the transfer of assets to heirs, or providing for family members with special needs without disrupting their eligibility for government benefits like Social Security Disability payments, for example.
What is a Revocable Living Trust?
A revocable living trust is a trust that can be changed or revoked at any time, and that is created while the grantor is alive. Most often, the grantor maintains access to the assets in the trust and is able to use those assets for their own benefit. If a co-trustee is named, such as another person, a bank, or a trust company, continuity of management can be assured, and the assets can still be used for the benefit of the grantor. The purposes of a revocable living trust include avoiding probate, protecting privacy, eliminating the need for a guardian to be named in the event of incapacity, and protecting assets from creditors or judgments.
Can a Trust Reduce Estate Taxes?
For certain wealthy individuals, creating a trust can reduce the estate and/or income tax burden. Arkansas does not have an estate tax, and the federal estate tax does not apply unless the estate is valued at more than $12.06 million in 2022. Therefore, this is usually only a benefit for those who have large estates.
For those who do, various kinds of trusts can be used to transfer assets out of the estate, thus reducing its value. Another way that trusts can be used to reduce the tax burden is to transfer wealth to family members who are in a lower tax bracket, as trusts pay tax on income from stock dividends, interest, and other earnings. Adding the income from a trust to the income of a person already in a high tax bracket can lead to exorbitant tax bills. Transferring some of that income to, for example, a child who has no other income can reduce or eliminate the income tax owed on the trust’s earnings. This can be risky, however, as giving a young person income could disqualify them from programs like student financial aid or scholarships, and they might not be mature enough to handle the money wisely.
Charitable trusts of various kinds can also be used to reduce the size of an estate when doing so would be beneficial.
What is a Special Needs Trust?
A special needs trust is a trust set up to benefit a person who is physically or mentally disabled or has other special needs. Many disabled people cannot work and therefore rely on government benefits such as Social Security Disability payments, Medicaid, SNAP, and others to survive. Inheriting money might put them above the income and asset limits for those programs, making them ineligible. This could have disastrous results, by cutting off the disabled person’s access to social workers, physical and occupational therapists, and other caregivers, for example. The beneficiary might become ineligible for certain subsidized housing or congregate-care facility, disrupting their lives and causing emotional upset and upheaval. It might also be concerning to put a large inheritance into the hands of a person who is not intellectually capable of managing it well. For these reasons, many families choose to set up a special needs trust. This trust is funded with assets that are managed by a trustee. The trustee is able to regulate how much money the beneficiary receives, preserving their eligibility for government assistance and safeguarding the funds from misuse.
These are only a few of the kinds of trusts that are available in the estate planning process. At Dudeck Law Firm, we focus our practice on estate planning and elder law, and one of our skilled and knowledgeable trust attorneys will be happy to answer your questions and help you explore your options. Call Dudeck Law Firm today at 501-327-3527 to discuss which trust might be most beneficial in your circumstances.