What is a Living Trust?

A Trust is a legal entity, set up to hold assets by an individual or a couple during the time that the creator(s) are alive and competent. It can be changed at any time.

What is the difference between a Will and a Living Trust?

A Will- designates who gets what assets-but must go through Probate, a lengthy, expensive, complex legal process.

A Trust-does no tneed to go through the time and expense of the Probate process.

What is Probate?

The purpose of this legal process is to pay creditors, supervise executor(s) and pass assets to heirs.

It is very expensive-with costs ranging from 4%-8% of the “gross” estate for attorney and executor fees. Gross estate means ignoring mortgages and basing costs and fees on the market value of assets.

Why didn’t the Attorney tell me about the Living Trust?

Probate attorneys are often reluctant as they will not get the probate fees after the testator (creator of the will) dies. These fees are statutory and as stated above and are quite extensive.

Where did this “new idea” of the living Trust come from, and how long has it been in existence?

The first known Living Trust drawn in the United States was done by Patrick Henry, an early colonist. It has been around for over 1,200 years actually dating back to A.D. 800 as Roman Law- and was adopted by the English. The first known Living Trust drawn in the United States was done by Patrick Henry.

Could Congress take away the Living Trust?

Congress has left “certain rights” to the states not granted to the federal government (which would be very difficult to change)and among those is the right to create a “legal entity”, such as a corporation or Trust.

Is the Living Trust valid in all fifty states?

Yes, the Living Trust is valid in all states. A person can have a California Trust holding property in another state.

What is an AB Trust?

A typical trust for a married couple which can be divided after the first spouse dies to save on estate taxes and protect the heirs. A couple can choose optional division language.

Can the surviving spouse use the money?

The surviving spouse can take all the income and invade the principal for very broad reasons which he or she interprets for their own health, education, support and maintenance-for basically anything he or she needs money for.

Can single persons form a Living Trust?

Most definitely! If you want to avoid probate, you should have a living Trust whether you are married or not (especially if you own any real estate).

Why must the Trust be funded?

A trust which holds no assets is basically worthless. The ownership of the home and various accounts should be changed to the trust. The attorney that does your trust should help you with this process.

Am I able to change the terms of this Trust in my lifetime?

Anytime-as long as you are competent.

Can I exclude someone from my Living Trust?

Absolutely!

What if I have irresponsible children?

You can dictate the terms for distribution or have the trustee hold the funds.

What if I have a disabled child?

Money can be held for his or her benefit by the trustee or a “Special Needs” Trust can be established for him or her.

Can the Successor Trustee make changes?

NO. Only the creators can determine the terms. If the trust were defective or ambiguous then the Successor Trustee would have to go to Court for clarification by the judge.

What happens if I get a divorce?

The trust assets can be divided and the trust revoked.

When should I update my Trust?

It is a good idea to talk to your attorney every 3-4 years about your particular situation. If there is a major change in the law, I contact my clients.

Should my children read my Trust?

If you like-but they can given a copy of a summary of the trust called the Abstract.

How old should someone be to be a Successor Trustee?

I recommend age twenty five (25).

Is there a Federal or State agency overseeing my Trust?

Absolutely not-it is a private document.

What are the disadvantages to having a Trust?

If you want to refinance your property some mortgage companies (not all) require taking the real estate out of the trust for a couple of days. It can be put back into the trust following the refinance.

What effect does having a Trust make on Income Tax?

No effect-you still use your own social security number(s) when filing your returns.

Are unconceived children or grandchildren covered by a Trust or if someone’s child dies before them?

A good attorney can make sure these concerns are handled.

Can you make donations to charities in a Trust?

Yes. Please make sure that the attorney does this correctly to avoid a tax spiral.

Does the Trustee have to be a relative?

No-the trustee can be a trusted friend, fiduciary, bank or an attorney.

Can you leave all your belongings to charity?

Yes

Can I still spend, sell, or transfer things to and from my Trust before I die?

Yes

MEDI-CAL QUESTIONS & ANSWERS

Our assets are in our living Trust. Isn’t this property protected against Medi-cal Claims?

No. A Living Trust does not protect you from Medi-cal claims. Any non-exempt property owned by your living Trust is subject to Medi-cal eligibility rules and recovery claims.

What is Medi-cal planning?

To help you preserve assets and still qualify for Medi-cal—especially important for a married couple that can’t qualify for long term care insurance or afford the very high premiums. Medi-cal eligibility is determined by the amount of income and resources available to the applicant. Therefore, Medi-cal planning involves the purchasing, transferring, conversion and/or liquidating of assets to enable you or your loved one to qualify under Medi-cal’s test if income and resources.

Is this legal?

Absolutely! Due to changes in federal laws enacted in 1996, almost anyone can qualify under Medi-cal’s eligibility tests. This is done by working within the complex rules and regulations of Medi-cal, and the planning may be different from one individual to the next. It all depends on your personal set of circumstances and objectives.

The Department of Health Services (DHS) makes a Medi-cal applicant sign a declaration that he is aware that such is possible-the “Notice of Spendown”.

The Medi-cal rules are very complex, and change every year. Since an improper transfer may result in a period of ineligibility up to 5years, you need to consult with a qualified Elder Law Attorney before attempting to qualify for Medi-cal benefits.

How can I find out more?

Click here to find out about Medi-cal legal strategies presentations.

What kind of things can you do to protect your assets and still qualify for Medi-cal?

Since the institutionalized spouse (i.e., the “sick” spouse) is only allowed to keep $2,000, most Medi-cal plans would involve taking his or her name off all community accounts and/or transferring his or her separate accounts to the stay-at-home spouse (i.e., the “well” spouse).

In addition, any excess resources above $2,000 for an individual, or $92,760 for a married couple) may be spent down by purchasing exempt or unavailable assets.

Your home can be transferred to anyone, not just your spouse, as long as it is an exempt asset at the time of transfer. This should be done as a step-transaction (other document) to avoid having the new owners pay unnecessary taxes along with capital gains.

In addition we can transfer income (i.e. pension benefits) to the well spouse.

What is the Medi-cal Power of Attorney for (27+ pages)?

This is the single most important document for Medi-cal planning. It will help your agent do Medi-cal strategies if you or your spouse needs long term nursing care

What assets can I retain and still qualify for Medi-cal?

You can retain your home, a car, household items, personal effects, musical instruments, Burial Insurance, Irrevocable Burial Trust, Burial Funds, Vaults and Crypts and a very small amount of Life insurance and ALL EXEMPT AND UNAVAILABLE ASSETS.

Who can help you legally avoid claims and enable you to pass assets to your heirs?

An Elder Law Attorney who understands the complex rules can help you protect and preserve assets and still qualify for Medi-cal.

I have Medicare. Won’t Medicare pay for nursing home costs?

No. Medicare will only pay for skilled nursing care, not “custodial” care. Even then, Medicare generally pays only for the first 20 days. From days 21-100, you pay the vast bulk of the bill, and after that, Medicare stops paying.

How about transferring my assets to my family members in order to qualify for Medi-cal?

Medi-cal has strict rules against improper transfers which result in a period of ineligibility. Certain assets are not subject to “look back” rules as they are “exempt.” Medi-cal “looks back” to different time periods to see if improper transfers have been made.

Will I have to sell our home in order to qualify?

No. Whether married or single, your home is exempt for Medi-cal eligibility purposes. However, certain steps must be taken to prevent Medi-cal from asserting a claim against your home to later recover the amount of nursing home bills it paid on your (or spouse’s) behalf.

Don’t we have to be poverty struck to receive Medi-cal to pay for nursing home costs?

No. One of the many myths about Medi-cal is that it is only available for the severely impoverished. This is not so. People can qualify for Medi-cal nursing and have their home paid for by the state—even though they have a reasonable amount of assets which are in certain categories.