Manage & pass down assets with a revocable or irrevocable trust.
You may have heard about “trusts” over the years, but very few nonlawyers actually know what they are.
The History of Trusts
The use of trusts originated in the Middle Ages when English knights wanted to protect their estates during a projected lengthy absence. The knights would convey their land to another, perhaps a trusted friend, with the agreement that the land would be conveyed back to them when they returned.
Unfortunately, however, the English common law courts did not recognize these agreements to transfer the land back to the original owner. A separate system of “equity,” was in the process of being developed in ecclesiastical courts to deal with the problem of overly restrictive rules in common law courts. These Chancery Courts began to recognize the concepts of legal versus equitable ownership and to allow landowners to retain beneficial ownership of their land.
What are Trusts?
Trusts are essentially a transfer of assets with a book of instructions. The person who creates the trust is called the “settlor,” “trustor,” or “grantor.” The assets are called the trust “corpus” or “trust estate.” The person who manages the assets is the “trustee.” A trust must have a purpose; it must be managed for a “beneficiary.”
There are two types of trusts, revocable and irrevocable.
Elder Law of Nashville provides estate planning services for families in Tennessee to help you draft and manage a trust.
In a revocable trust, the person who creates the trust, the grantor, is also typically the trustee and the beneficiary. The trust provides instructions to a successor trustee in case of the incapacity or death of the grantor. This type of trust acts like a will. The grantor retains the property during his or her lifetime, can change anything about the trust during that time, and the trust governs what happens upon the grantor’s death.
With an irrevocable trust, the grantor is not the trustee and cannot change anything about the trust during his or her lifetime. The grantor may or may not receive the income generated by the trust assets and cannot usually touch the principal of the trust.
Under limited circumstances, however, aspects of the trust can be changed, and the trust can even be dissolved by consent of all of the parties.
Irrevocable trusts can be used to set aside assets that will not become available to Medicaid. This type of trust, however, must be created in light of the fact that Medicaid has a five-year “look back” to determine if any assets have been transferred for less than fair market value. There are very specific drafting requirements for this type of trust to be a noncountable asset for Medicaid.
Parents who would like to see the family farm passed down to children are an example of clients who might want to consider an irrevocable “Medicaid Protection Trust.”
Develop Your Trust with an Estate Attorney
Trusts must be drafted by an attorney. A workable trust is not something that an Internet form can provide. Elder Law of Nashville has experience counseling clients about trusts and drafting them in appropriate circumstances.