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Estate Planning Goals

Many people confuse asset protection, Medicaid planning, and estate tax avoidance.  It is essential that we are very clear on the key distinctions of asset protection and the types of asset protection that can be obtained.

The first distinction is identifying if protection is desired during life (now), after death, or both?  Determining when asset protection is sought, will lead to whether a revocable living trust or irrevocable living trust is utilized.  Revocable living trusts typically provide for the management of an individual’s assets during their lifetime if they become incapacitated, and can provide asset protection for those same assets to the beneficiaries, after the grantor’s death.  In contrast, a properly drafted irrevocable trust created during lifetime, can provide asset protection when funded, but may not meet the requirements to qualify for benefits eligibility planning, Medicaid, VA and other needs based benefits.  A traditional irrevocable trust will provide asset protection as long as the grantor who funds the trust gives up the right to the assets and/or income which protection is desired.  Simply stated, if the grantor retains the right to income but not principal, the principal will be protected, but the income will not.  General asset protection begins when the asset protection trust is funded.  If any liability arose or became known prior to the funding of an irrevocable asset protection trust, the protection will be not be achieved as to those known potential liabilities.  Any liability occurring after the funding of the trust, will be protected from any claims related to it.

Unlike asset protection, benefits eligibility planning requires additional restrictions beyond what is required for asset protection.  The two most significant distinctions are (1) any rights provided to the spouse of the grantor will be determined available to the grantor or spouse in determining the grantor or spouse’s eligibility for a needs-based benefit; or (2) unlike an asset protection trust where the assets are protected immediately upon funding, funding of an irrevocable asset protection and needs benefits trust exposes the asset to “view” and still be considered in determining the future eligibility of the grantor or spouse for up to five years after the trust is funded.  A final distinction in needs based benefits planning relates to veteran’s benefits which provide that any asset owned in an asset protection trust that is a grantor trust,  is counted (in “view”)  in determining eligibility for the Veteran’s Aid and Attendance and Housebound benefits.  One caveat however is property held trust which does not generate income and therefore not targeted (or in “view”) by the Veteran’s Administration.  Any conversion of the property to income producing will make the proceeds countable in determining the Veteran’s eligibility for benefits, even though it’s in an irrevocable asset protection trust.

The irrevocable grantor trust allows the grantor remain as trustee, change the beneficial interest to anyone except themselves, maintain the benefits during their lifetime of income or use of the residence, and to receive a full step up in basis on all trust assets at the grantor’s death.

A final consideration with asset protection is whether any tax reduction strategies are a goal.  Some asset protection planning trusts can be utilized to reduce federal estate taxes while others choose to ensure the assets of the asset protection trust are included in the estate of the grantor, to ensure a “step up in basis” on the assets owned by the trust.  Other asset protection trusts enable the spreading of income generated by the trust to beneficiaries who are in a lower income tax bracket than the Grantor, thereby minimizing income tax.

How can I decide if a Trust is right for me?

Call today to schedule your complimentary estate planning consultation with Ed Matthews.

Ed Matthews is one of only a few attorneys in the state of Minnesota who is also a currently licensed Certified Public Accountant (CPA). Ed graduated summa cum laude from William Mitchell College of Law in 2003, where he served as Executive Editor of the Law Review.  He is a former Minnesota Supreme Court law clerk.  Perhaps, most importantly, he does not practice probate!  Instead, he has dedicated his life to helping Minnesota families avoid probate and protect their hard-earned assets.

To schedule a complimentary consultation with Ed Matthews, call (651) 501-5608.

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