Trust Purposes in Cary, North Carolina
How and Why a Trust Benefits My Situation?
The type of Trust you need is completely dependent upon your situation and your goals or concerns. Below is a brief discussion of different situations and how and why Trusts are used for those situations.
Trusts for Family
Many married couples do not want to burden their surviving spouse upon their death with paperwork, making title transfers, and having finalized the last steps of their estate plans. Revocable Trusts for married couples allow the spouses to jointly set up their estate so that the survivor does not have to transfer property to the surviving spouse seamlessly. If this is your only concern, the law provides many ways to provide for your spouse without needing a Trust. However, if you have children, using a Revocable Trust to transfer your assets is almost always better than using Probate.
Blended families are common these days and come with a few more complexities that must be addressed carefully in estate planning. Most spouses, whether it's a first or second marriage, leave everything to the spouse. Once the surviving spouse receives the property alone, he or she is free to pass it on to whomever he or she wants which is often to his or her children, not his or her step-children. While this may not be the plan the spouses put in place, the surviving spouse can change his or her mind and change his or her plan, on his or her own or with the help of his or her children. This results in disinheritance. Sometimes it happens unintentionally, however, sometimes the surviving spouse's children intentionally "help" change things to ensure they get it all. When step-brothers/sisters do not know one another or do not get along, the risk of this goes up and totally changes what the first spouse-to-die wanted. An easy solution to prevent this problem is to use a Revocable Trust written to protect your wishes. The trust is a joint effort by the spouse to protect themselves and their blended family children. Within the Trust, a spouse's interests and wishes can become irrevocable (or unchangeable) upon death and cannot be changed. This level of planning is crucial to ensure your wishes are actually followed.
Trusts for Assets: What You Own
The type of Trust you need depends on what you own. If you own real estate, particularly if you own several distinct properties and certainly when you own properties in more than one state, you should strongly consider using a Revocable Trust to pass on the real estate without taxes and fees. Probate, by law, occurs in the state where the real estate is located. So, for example, if you own a beach home in South Carolina, a mountain cabin in West Virginia, and your North Carolina home then your estate administration will be probated in all 3 states. The same process that happens in North Carolina will happen to happen in South Carolina and West Virginia, with some possible state-specific differences. Deeded timeshares are treated just like traditional real estate too.
Real Estate is not the only asset that makes one think a Trust is better. There are many other assets that a Trust can pass on in a more efficient way than Probate. Vehicles, trailers, boats, jet skis, stocks, bonds, businesses, company stocks and shares, partnerships, sole proprietorships, and certain bank accounts and investment accounts.
Some assets allow you to name a beneficiary upon your passing. This is often called a "Payable on Death" (POD) or "Transfer on Death" (TOD). These types of assets include life insurance, retirement accounts, and other similar assets. The benefit is these accounts are only temporarily frozen until the beneficiary notifies the financial company, proves their identity, and provide proof of death of the account holder. These funds do not automatically go through Probate, but the information does in North Carolina. The North Carolina Probate system wants to know about all the assets owned by the deceased person. So, the executor has to find out about these accounts and report them to the North Carolina Probate Court. The Probate Court has the authority to seize these assets to pay lawful and legitimate claims the estate owes to creditors. So, maybe these beneficiary designations (POD or TOD) partially avoid Probate, but maybe they don't. The other pitfall is if the beneficiary designations are not up-to-date then the funds either go to the wrong person or revert back through the Probate process. Designating a Trust as a beneficiary, in many situations, will solve this problem and prevent your plan from being circumvented.
Trusts for Beneficiaries
Children with Special Needs who are beneficiaries must be considered with caution. For this discussion, "children with special needs" means not only having a disability, but also includes children who cannot manage money well, or at all, addictions, married children who have overstepping spouses, etc. When you have a child or beneficiary who has special circumstances that cause you to worry about what would happen to either them or the inheritance you give them, you should really consider using a Trust to handle their inheritance. The Trust can be set up to prevent the child from losing his or her disability benefits and still benefit from an inheritance. A Trust can make sure the inheritance goes to your child and not your child's creditors, spouse, or ex-spouse. A Trust can also provide financial resources so long as your child remains sober and is not involved in any type of activity that would jeopardize their health, safety, and well-being. This works because you choose a trusted person to manage the inheritance on behalf of the beneficiary.
"Good" kids but "not so good" with money. I meet a number of parents whose children are good people but bad with money. This is also very applicable for minor children or young adult children. Depending on the specific circumstances, a Revocable Trust may be proper to hold assets for these children, minor or adult, until they reach a sufficiently mature age to receive their full inheritance. This does not mean they cannot benefit from their inheritance before reaching that age. But it does mean that you have put a trusted responsible person to look after it for them and give them what they need until they reach that age. You can be as specific or restrictive as you want, or as open with wide discretion. Again, it depends on what your unique situation, what you want, and any concerns you may have. Consult an estate planning attorney to discuss your particular situation and ideas on how to handle it.
Special Trusts came be created and used to hold, protect, and properly distribute the inheritance to these beneficiaries as to not disrupt disability benefits, lose inheritance to creditors, and allow the money to be mismanaged or lost to other people. Depending on the benefits, different types of trust or trust provisions need to be used to protect your estate and your beneficiaries. If you have a beneficiary with a special need or are concerned that a special need may arise, you will be best served by discussing your personal situation with an estate planning attorney.
Trusts for Long-Term Care
Many people do not have long-term care insurance to pay for long-term care costs as they age. And a lot of these people have seen their parents, uncle, aunt, or neighbor go into a nursing home for the last few years of life and lose everything they had! Asset Protection is a concern that should make you consider using an Irrevocable Trust to protect what you can and preserve it for your children and beneficiaries. If you do not have long-term care insurance, can't afford it, and are not "self ensured" (meaning you have approximately $210,000+ per person you're fine with spending on your long-term care) then you should learn about and consider using an Irrevocable Trust, particularly if you are concerned about needing long-term care facilities (aka nursing homes) at the end of your life.
Medicare does not cover long-term care. Sometimes Medicare will pay for up to 100 days in a nursing home if your prognosis is a recovery. Medicaid will not automatically cover your long-term care even if you feel you can't afford it. Medicaid only covers people who are eligible. Eligibility is based on your financial resources. An oversimplified explanation is a single person can't own more than $2,000 worth of assets to be eligible and a married person, again an oversimplification, with his/her spouse can't own more than their home, a car, and about $126,000. If you own anything over those amounts you have to spend it down before Medicaid will pay for anything. This information alone is not sufficient for you to know enough and make informed decisions about this type of planning. You need to learn about how this works specifically for you to protect your assets and it is best to have a consultation with an estate planning attorney to find out how this works in your specific situation.
Trusts for Privacy
Probate is a public process. If you do not want all your own updates on your death to be reported to your County of residence for anyone and everyone to review, then you really should have and use a Trust. Trusts are private documents and do not have to be filed with the County upon your death.
Trusts for Charities
Using a trust to transfer your estate assets to a charity or charities is a common practice for people who want to reduce estate administration costs and position the charity(ies) to receive the assets, or their value, sooner than later. Often times a Revocable Trust completely fulfills this goal. However, depending on the situation, you may want to use a Charitable Remainder Trust to do this. Charitable Remainder Trusts are great ways to avoid capital gain taxes, create an income stream for yourself and/or other beneficiaries, and leave the remaining assets to a charity or charity. For example, you could sell a rental home whose value has appreciated to a level that its sale will trigger a high capital gains tax bill. Instead of paying the bill, you can avoid the tax by using a Charitable Remainder Trust. The rental home would be transferred to the Charitable Remainder Trust, later sold with the proceeds being reinvested. The new investment can provide income to you, and then other people if you want, and the charity or charities will get what is leftover. Again, circumstances vary, but in the right situation using a Charitable Remainder Trust avoids capital gains taxes, provides you and others with lifetime income generated from the invested trust assets, and a postmortem remaining balance gift to a charity or charities of your choice. Contact an estate planning attorney to learn more about Charitable Remainder Trusts and your situation.