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Choosing a trust to suit your needs

On Behalf of | Sep 28, 2022 | Blog, Tax Law |

Trusts are popular estate planning tools for avoiding lengthy probate. They can also benefit grantors during their lifetime.

Irrevocable and revocable trusts have the versatility to benefit individuals at all income levels.

Irrevocable trust

Irrevocable trusts are unchangeable and serve numerous purposes. Despite their permanence, six variations remain popular in California.

1. Medi-Cal asset protection trust

Transferring assets into irrevocable trusts can qualify individuals for Medi-Cal long-term care benefits. Naming non-Medi-Cal beneficiaries for these trusts ensures that the state will not pursue benefit reimbursement when the benefit recipient dies.

2. Life insurance trust

Placing a life insurance policy in an irrevocable trust ensures that benefits are available to beneficiaries if a claim arises. It also ensures that grantors do not draw funds for other purposes.

4. Charitable trust

Charitable lead trusts provide payments to designated charities over a set period. Beneficiaries receive the remaining assets as gift transfers. Charitable remainder trusts reverse this arrangement, often by providing lifelong income to grantors and beneficiaries before releasing assets to charities.

5. Asset protection

California allows asset protection trusts only if they benefit someone other than the grantor. These trusts shield assets from creditors or lawsuits, preserving wealth for future generations.

6. Grantor supplemental needs

Parents may create this trust to provide a comfortable future for their children with disabilities while ensuring they continue to receive government benefits. They can also name subsequent beneficiaries to receive the remaining trust assets following the original beneficiary’s death.

Revocable trust

Revocable trusts are relatively easy to establish and provide significant flexibility. For example, grantors can make withdrawals to pay for their long-term care or change beneficiaries following a divorce.

Deciding on the amount of control you need or want is one of the first steps to take when choosing between irrevocable and revocable trusts.

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