Do You Give Up Access to Assets Held in a Trust
Trusts can be used to avoid probate, protect assets, and reduce taxes. The answer depends on what type of trust you have and its terms. Understanding these distinctions helps you make informed decisions that align with your estate planning goals.
Understanding Trust Basics
A trust is a legal arrangement where one party, the trustee, manages assets on behalf of beneficiaries. The trustor, also known as the grantor or the settlor, creates the legal document that outlines the rules and purpose for the trust. Each type serves distinct purposes and determines your level of access and control over the assets.
Revocable Living Trusts: Retaining Control
A revocable living trust allows you as the Trustor to maintain complete control over your assets during your lifetime. You can amend or revoke a trust at any time. You can modify the trust’s terms. You can also be the trustee for your trust. The trustee is responsible for managing the trust assets. If you are the trustee of the trust, you have total contol over how the trust assets are managed, just as you did when you owned the assets in your individual or joint names.
Typically, you also name yourself as the beneficiary of the trust, so assets placed in a revocable trust remain accessible to you. It is a great option for those who wish to avoid probate and still maintain flexibility. However, because you retain control, the assets are not shielded from creditors, lawsuits, or certain tax implications.
Key Features of a Revocable Living Trust
Full Access to Assets: You can add, remove, or use trust assets without restrictions.
Flexibility: The trust can be amended or revoked as your circumstances or preferences change.
- No Asset Protection: Since the assets remain under your control, they are not protected from creditors or legal claims.
- Revocable living trusts are ideal for individuals seeking simplicity and control while ensuring their estate plan is easy to administer upon death.
- Irrevocable Trusts: Limited Access
An irrevocable trust, on the other hand, requires surrendering some level of control over the assets. Once assets have been transferred, it is difficult to amend or revoke a trust without the beneficiaries consent, or in some cases court approval. If this provision has been included in the trust, a Trust Protector can help. This setup is often chosen for asset protection, tax planning, or Medicaid eligibility.
While you may lose direct access to the assets, irrevocable trusts offer significant advantages, such as shielding the assets from creditors, lawsuits, and estate taxes. These benefits come with the trade-off of reduced flexibility.
Key Features of an Irrevocable Trust
Limited Control: Once assets are transferred, the trust terms govern their use.
Asset Protection: Assets are typically shielded from creditors and lawsuits.
- Tax Advantages: Irrevocable trusts can reduce estate tax exposure and facilitate tax-efficient gifting strategies.
- Irrevocable trusts are often used in situations where long-term asset preservation or eligibility for government benefits like Medicaid is a priority.
- Access to Income or Benefits
Even with an irrevocable trust, you may retain access to some benefits. Certain trusts, for example, allow you to receive income from the assets. This could be interest or rental income. In these cases, you don’t access the principal, but you still benefit financially.
A qualified personal residence trust (QPRT) is one example where you can continue to live in a home placed in the trust for a specified period. Similarly, a charitable remainder trust (CRT) allows you to receive income from the trust during your lifetime before the remainder passes to a designated charity.
These arrangements balance asset protection with the ability to benefit from the trust’s resources.
Medicaid Planning and Asset Access
For individuals planning for long-term care, irrevocable Medicaid trusts are a common strategy. Medicaid will cover the cost of custodial care, while Medicare will not. However, you may still receive income generated by the trust assets while ensuring the principal is protected for your beneficiaries.
Again, as a reminder, it’s essential to note that qualifying for Medicaid benefits involves a five-year look-back period. Transferring assets to a trust before you apply for Medicaid may temporarily disqualify your application. Proper planning well in advance ensures the trust achieves its intended purpose.
Trusts for Asset Management
Trusts are also valuable for managing assets on behalf of others. A special needs trust, for example, protects assets of a disabled person without affecting their eligibility for government assistance. In these cases, the trustee is in control of the assets and ensures that they are used in accordance with the trust’s terms. This structure provides security and oversight for vulnerable or financially inexperienced beneficiaries.
Deciding What’s Right for You
Whether you surrender access to assets in a trust depends on your goals and the type of trust you establish. Revocable trusts allow you to retain full control and access, while irrevocable trusts offer enhanced protection and benefits at the cost of flexibility.
By understanding how different trusts operate, you can confidently incorporate them into your estate plan. With the right approach, you can balance control, protection, and long-term planning for your assets and loved ones.
Check Out Our Testimonials!
If you’re thinking about engaging our firm, you may want to gain some insight before you take the plunge. With this in mind, we have published a number of testimonials that have been shared by our clients, and you can visit this page to access them: Tulsa/Oklahoma City estate planning testimonials.
After helping his own family deal with a lengthy probate and the IRS following his father’s untimely death in a farm accident, Larry Parman made a decision to help families create effective estate plans designed to reduce taxes, minimize legal interference with the transfer of assets to one’s heirs, and protect his clients’ assets from predators and creditors Read More! Larry Parman is an attorney at law. He has posted the latest posts on his blog.
