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3 ways trusts can help middle-class adults planning their estates

On Behalf of | May 26, 2023 | Trusts

There are many different types of trusts that can serve numerous purposes for estate planning, but people often dismiss them as tools that are only beneficial for the incredibly wealthy. Yes, trusts can benefit those with multi-million-dollar estates or complicated assets, like a business, to pass on to the next generation.

However, trusts are also useful for those in middle-class families. People can pursue numerous estate planning goals with a trust. The three goals below are arguably the most common reason that middle-class families add trusts to estate plans.

To protect resources from creditor activity

Later in life, when older adults live on a fixed income, they could fall behind on their financial obligations. Creditors, upset about delayed or missed payments, might eventually take people to court over their inability to pay their debts. Assets owned by an individual are at risk in a debt-related lawsuit. Creditors could ask for a lien against someone’s home, for example. Assets moved into a trust before legal challenges related to debts arise are often safe from creditor claims both later in someone’s life and also after they die.

To help qualify for Medicaid

Medicare benefits are available for adults after they reach retirement age, and Medicare will pay for the majority of someone’s treatment costs. However, there are many expenses, like skilled nursing support in someone’s home, that Medicare will not cover. Qualifying for Medicaid can be a challenge, as any large gifts or transfers can trigger penalties. Assets can also be vulnerable to claims against an estate after someone dies. Trusts can be a way for middle-class adults to more quickly qualify for Medicaid benefits and to protect their resources from estate recovery efforts after they die.

To protect vulnerable family members

Maybe someone remarried, and their new spouse does not have a direct relationship with their children. A trust can be a way to allow a spouse to enjoy certain assets, like the right to remain in the marital home, without stripping their children of the right to inherit those assets. Trust can also be valuable for those who have struggled with addiction or who have special needs. Using a trust can shield someone from inappropriately using their inheritance and may also protect them from financial abuse conducted by those who would like access to their resources.

Trusts help to diminish the assets in someone’s name by changing the ownership of those assets and can provide a degree of oversight regarding the use of inherited property. Adding a trust to an estate plan can be a smart move for those in middle-class families who want to craft a meaningful legacy and protect their loved ones from collection activity and other risks.