Brown and Associates - Attorneys and Counselors at Law, P.L.L.C.

MORE THOUGHTS ON TRUSTING YOUR FUTURE TO TRUSTS

By: Jerry E. Shiles

Over the past couple of weeks, I’ve talked about a number of different types of trusts. This week I want to focus on some "non-tax" trusts. After all, there are only so many of you reading this who are worrying about protecting your millions. The average reader is looking for ease of management and transition of assets or the assurance that his or her assets will go to those whom they are intended to benefit and will be used in the way intended by the giver.

The Ancillary Trust

There are many reasons for creating a trust that have absolutely nothing to do with avoiding estate and gift taxation. The trusts below are useful for those of you of modest means.

The first is the Ancillary Trust. If you live in Oklahoma and only own real property in Oklahoma, your estate will only need to be probated here, if at all. But if you also own property in Texas, you must have some way of transferring title there and that is normally through probate. In other words, if you own property in more than one state, there is a very real likelihood that your estate will be subject to a second or even third probate at your death. This can be avoided through the use of an Ancillary Trust.

The way you do this is by deeding the Texas property to your Oklahoma trust. At your death, the title to the Texas property is in the trust, not in your name. As a result, probate in Texas is avoided. The trust continues, the successor trustee becomes responsible for the property, and he can sell or transfer it with a trustee’s deed.

The Standby Trust

Another common type of trust is the Standby Trust. Half of us will become unable to manage our affairs at some point in our lives. As an estate planner, my job is to make sure you have made all the necessary arrangements to protect yourselves during this period of vulnerability. For many, this can be done with nothing more than a durable power of attorney, which Sarah and I have discussed in many of our articles.

For some, however, something more sophisticated may be required. This something else is a two-step procedure. First, you execute a detailed durable power of attorney that authorizes your agent to transfer any or all of your assets to a named trust. Then you create a "shell" trust which is funded with minimum assets. If you should become disabled, your agent has the power to transfer all your remaining property to this trust and to manage it during your period of disability. Because most institutions are far more comfortable with trusts than with powers of attorney, this simple procedure will make it far easier for your trustee to handle your affairs.

In addition, in a trust you can specify exactly what your trustee is to be able to do and how your assets are to be managed. It remains in place at your death, unlike a durable power of attorney which is no longer effective once you are gone.

The Medicaid Trust

I’ve talked about Medicaid Trusts in great detail in other columns, so let me just say that to qualify for nursing home benefits under the Medicaid program, both your income and assets are capped. Several types of Medicaid trusts can help you qualify. These include:

Testamentary Trust. A trust created by will (commonly called a "testamentary trust") is not a countable resource. This means you can create a testamentary trust for the benefit of your wife and at your death, the trust assets can be used for her benefit, within limits, without disqualifying her for nursing home benefits.

Since Medicaid has an income test, you need to be sure the income from the trust won’t cause your wife to be disqualified. The current income limit is $1,892 per month.

Under 65 Disabled Trust. I mentioned this trust, often referred to as a d4A trust, in an earlier column. If you are disabled and under 65, a court can establish a trust with your funds and the trust assets will not count. You receive distributions from the trust during your lifetime and at your death, the government recovers what it has expended on your behalf from the remaining assets, if any.

Miller Trust. If your income is greater than $1,892 per month, but not more than $2,500 per month, you can transfer your excess income to a trust and use it to supplement your care during your lifetime. At your death, the government is entitled to reimbursement.

Pooled Trust. Some states, but not Oklahoma, allow you to transfer your assets to a pooled asset trust established by a nonprofit association for disabled persons. Any amounts remaining at your death are subject to government reimbursement.

Special Needs Trust. You can create a special needs trust for your disabled beneficiary to provide for needs not covered by the government. Since the trust funds are subject to the control of the trustee, not the beneficiary, they will not disqualify him or her for Medicaid.

Disabled Child Trust. If you have a disabled child, you can transfer all your assets to a trust for his or her sole benefit and you will immediately become eligible for nursing home benefits. Your child receives distributions from the trust for life and any remaining assets are subject to government reimbursement.

If you have questions about any of these Medicaid trusts, I encourage you to visit our website or email me at the address listed at the end of this column.

The Management Trust

Before I close, let me mention the Management Trust. Sometimes you just want someone else to manage your assets. This trust outlines yours and the trustee’s duties and relationships. It makes it clear the trustee is responsible for asset management. Some parents use this trust to train their children to manage assets since the parents retain control and can step in if things go wrong.

Hopefully these last few columns have been helpful. If you would like additional information, please consult with an estate planning attorney knowledgeable in the field of trusts.

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