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A trust that works perfectly for one family may be completely wrong for another. Choosing the right type of trust depends on what you want it to accomplish, such as avoiding probate, controlling an inheritance, providing for a person with special needs, protecting assets, or planning for long-term care. Before deciding on a trust, start with the goal you are trying to achieve rather than the name of the document.
What Should You Consider When Choosing a Trust?
The first question is not, “Which trust should I create?” It is, “What problem am I trying to solve?”
Some families want their property to transfer outside probate. Others are concerned about a child receiving an inheritance too young. You may want to provide for a spouse while preserving assets for children from an earlier marriage, or you may be thinking about future nursing home costs.
Your priorities determine which trust structure deserves consideration. Important factors include your assets, family relationships, beneficiaries’ needs, how much control you want to retain, and whether tax or public-benefit considerations are involved.
When Does a Revocable Living Trust Make Sense?
A revocable living trust is often used by people who want greater control over how property passes at death while maintaining flexibility during their lifetime.
As the person creating the trust, you can generally change its terms, add or remove property, change beneficiaries, or revoke it entirely while you have capacity.
Assets properly transferred to the trust can also pass without going through probate. That can provide greater privacy and simplify administration, particularly when someone owns real estate in multiple states.
However, a revocable trust generally does not protect your assets from your own creditors or nursing home costs simply because you transferred property into it.
When Would You Choose an Irrevocable Trust?
An irrevocable trust involves a more significant tradeoff. You generally give up considerably more control over assets placed into the trust in exchange for benefits that a revocable trust cannot provide.
Depending on how the trust is structured and its purpose, irrevocable trusts may be used for asset protection, tax planning, long-term care planning, or transferring wealth to future generations.
Because these trusts are intentionally difficult to change, creating one should be a deliberate decision. The potential benefits need to justify giving up direct ownership or control of the assets involved.
Which Trust Can Protect an Inheritance for Children?
Parents do not necessarily want a child to receive a substantial inheritance outright at age 18.
A trust can instead establish rules for how the money is managed and distributed. For example, a trustee might have authority to pay for education, housing, health care, or other needs while the beneficiary is young. The trust can then provide larger distributions at ages chosen by the parent rather than transferring everything at once.
This approach can also be useful for adult beneficiaries who may struggle with money management or need additional protection from poor financial decisions.
What Type of Trust Helps a Person With Special Needs?
A special needs trust allows assets to be used for a person with a disability without unnecessarily jeopardizing eligibility for means-tested government programs such as Supplemental Security Income or Medicaid.
The details matter considerably. Different types of special needs trusts apply depending on whose assets fund the trust and the beneficiary’s circumstances.
The Law Office of Carey Thompson, PC works in both estate planning and Social Security disability law, an area where the firm’s two primary practices naturally intersect. Families planning for someone who receives public benefits need an estate plan that accounts for both inheritance goals and eligibility for public benefits.
Can a Trust Help With Nursing Home and Medicaid Planning?
Certain irrevocable trusts may play a role in planning for future long-term care expenses and Medicaid eligibility.
Timing is especially important. Medicaid applies rules to certain asset transfers made before an application for long-term care benefits. Moving property shortly before nursing home care is needed is therefore very different from creating a long-term plan years in advance.
A standard revocable living trust does not provide the same Medicaid planning benefits. Families considering long-term care should make sure the type of trust they create actually addresses that specific goal.
Build the Trust Around Your Goals
A trust should solve a specific estate planning problem, not add complexity simply because trusts sound more sophisticated than wills. The right structure depends on your assets, beneficiaries, family circumstances, and what you want to happen both during your lifetime and after your death.
At the Law Office of Carey Thompson, PC, we help individuals and families throughout Dallas-Fort Worth evaluate their estate planning goals and determine which trust structures best support them. Contact us today to review your circumstances and build an estate plan that matches your goals.