Trust Types in Estate Planning in Kentuckiana
There are many tools that can be used for estate planning in Indiana, including trusts. There are different types, and they each serve the purpose of helping you achieve your goals. Just like any time you work with tools, you need the right one for the job. Estate planning tools are not just for the wealthy or elderly and can prove to be invaluable to you and your family no matter your income level or age.
Indiana trust requirements
A trust is a legal way of holding, managing and distributing property. There are many different kinds of trusts, but they have some things in common. To be legally valid, a trust needs to have four elements:
- There must be someone creating the trust. That person is the “trustor” or the “grantor.”
- The trust must contain some kind of asset, usually called the “corpus.”
- There must be someone taking care of or managing the trust and distributing its assets or income as directed. This person is the “trustee.”
- The trust must have a purpose. It may distribute trust property, or income generated by trust property, to a person, a group of people or an organization such as a church or charity. The person, people or organization benefiting from the trust is the “beneficiary.”
Common types of Indiana trusts
The following types of trusts are used in estate planning.
- Revocable Living Trust: The Revocable Living Trust (RLT) is often created so beneficiaries can avoid the probate process (how a will is approved by a court). Depending on the estate, probate may be a long and expensive process and typically requires the estate to hire a lawyer. An RLT makes sure that, after the grantor’s death, the trust assets go to the grantor’s intended beneficiaries without a lengthy and expensive court process. Revocable trusts can be changed in the future.
- Irrevocable Living Trust: It can be drafted in compliance with Medicaid law to help a family preserve their assets so that they don’t lose a lifetime of savings to pay for nursing home care. Medicaid is the federal program to aid the indigent. It’s also the largest payer for nursing home residents and requires a low level of assets to qualify. Through an irrevocable living trust a person would own few or no assets, but the assets they earned over their lives would be held in trust and be used to help them during their lifetime. Irrevocable trusts cannot be changed in the future.
- Qualified Income Trust (Miller Trust or QIT): This protects assets when an individual applying for Medicaid has too much income. It’s so high it exceeds the amount allowed by Medicaid eligibility rules. The QIT is a type of irrevocable trust.
- Testamentary Trust: It’s created through explicit instructions in a will of a deceased individual. This type of irrevocable trust is used to leave assets to a beneficiary but only at a specified time and takes effect upon the grantor’s death. This trust does not avoid probate. It actually needs probate to take effect.
- Special Needs Trust: These trusts benefit individuals with special needs (normally due to some type of disability) and are intended to hold assets meant to benefit the individual which come from a third party, such as parents, other family members or the proceeds of a personal injury lawsuit. These trusts provide for the person’s care and comfort after using up government benefits. Without this trust, special needs individuals that receive financially based government benefits may lose those benefits.
- Minor’s Trust: It passes assets to a child and provides for management of those assets until the child reaches a certain age specified by the grantor. When the beneficiary reaches the given age, he or she assumes full control of the assets and the trust ceases to exist. This trust avoids expensive proceedings such as appointing a guardian to manage the assets the child inherits before he or she turns 18 years old. This arrangement holds all assets in the trust secure for the minor child, and the grantor receives no income from the trust’s assets.
- VA Eligibility Trust: Like other trusts meant to help a loved one become eligible for long term care, these trusts protects assets outside asset limits to qualify for VA assisted living, in-home care or nursing care and ensures eligibility for that care if and when it’s needed.
Where to go for help with creating an Indiana trust
Many families have depended on McNeely Stephenson to answer their estate planning questions. We represent and counsel families and their loved ones with the legal and financial issues that come with the creation of trusts, including aging, disability and serious illness.
Whether you’re planning for your own future or for the future of a loved one, please consider allowing us to help you navigate the law and determine which trust is right for you. Contact us today to start finding solutions: complete our online form, or give us a call.