Trusts tend to evoke strong, negative emotions in many people. This is largely because trusts have been associated with extreme wealth and “trust fund babies” for a long time. This is a misconception, and Lake Charles residents who continue to ignore trusts when estate planning could be missing out on important benefits and protection.
Clarifying what a trust is may help clear up some confusion. A person, referred to as a grantor, creates the trust, which is a legal entity. The grantor then transfers assets to the trust, which will ultimately go to beneficiaries, or heirs. The grantor should name a trusted individual to act as the trustee, and he or she will manage the assets, make distributions to beneficiaries and more according to instructions. The instructions are contained in a trust document.
So what is the point of putting assets in a trust? For those approaching retirement who will need to apply for Medicaid, creating trusts can protect financial assets. Things like income, savings and retirement accounts that are held in a trust will not count when applying for Medicaid, which means that an individual can qualify for Medicaid without exhausting his or her life’s savings.
Protecting assets — particularly money — is another important function. Assets in trusts are generally protected from creditors and cannot be collected for nonpayment. Trusts that are designed to pay out inheritances in smaller chunks can also prevent heirs who lack financial skills from blowing through significant amounts of money all at once.
People in Lake Charles often think that wealth is a barrier to estate planning, but this is not the case. Most people have assets they would like to protect and pass on, such as motor vehicles, homes, life insurance policies and more. Trusts can play an important role in this process, providing further protection and instructions regarding the management and distribution of assets.