Special-Needs Trusts
Medical coverage is often more important to a beneficiary than a monetary inheritance. Lots of people rely upon Medicaid or other need-based programs to pay for their chronic medical expenses. If they should inherit an unrestricted amount of money, they could be disqualified from receiving their benefits until the money has been exhausted. So, they receive no actual benefit from the inheritance, it being required to be used for their medical care. Probate court conservatorships cannot help in this situation.
A trust can include provisions that the share of that person is to be held in a discretionary trust, which gives the beneficiary no right to these assets without the permission of the trustee, and at the death of the beneficiary any remaining assets would go to one or more other named beneficiaries, the so-called remaindermen. The trustee could use some of the money—less than what would disqualify the beneficiary from the program—for the benefit of the beneficiary but would not be required to do so. Paying for a vacation at a theme park, for example, or buying toys, games, and clothing would likely not disqualify the beneficiary. This type of discretionary Medicaid trust takes careful drafting by an experienced trust attorney, since the law changes often in these areas and varies from state to state. It is a personal decision to do it this way, since some would think it a way of taking unfair advantage of the Medicaid program. (I have never had anyone say no to this suggested approach.)
Joint or Single Trusts
Trusts can be joint or individual. Married couples typically opt for joint trusts, although they can have individual ones if they choose. Couples who are in second marriages, where each brought assets into the marriage and might have children from prior relationships, often have a desire to use the assets of the first to die to benefit the survivor, with the residue going to that person’s separate children at both their deaths. The trust of the first to die usually becomes irrevocable at that time. As we know, that means it cannot be changed. The trust has to be carefully written to protect the survivor as well as the children. The surviving spouse is normally not a sole trustee.
Even in relatively modest family estates, an irrevocable survivor’s trust is sometimes used. It often happens that one of the parties already had a house into which the new spouse moved. The house-owning spouse will give the survivor the irrevocable right to live in the house as a primary residence for life, with the house going to the children at both deaths. Be sure, though, that if this type of trust is created it also protects the survivor’s right to the use of the household furnishings and possibly automobile. I had a case where the children of the deceased parent actually removed all the furniture, right down to the kitchen dishes and silverware, even though they could not get possession of the house itself. People can be real jerks when a stepparent dies, and it often comes as a tragic surprise to the survivor. A trust can be written to provide for the individual wants and needs of nearly any family situation.
A grantor does not have to be married to create a joint trust. I have prepared joint trusts for a parent and child and many for unmarried couples.
As you can see, the flexibility of revocable trusts, both joint and single, allows you to accomplish your testamentary goals while avoiding the high cost and time consumption of the probate process. The vast range of trust types and provisions is why, in my opinion, preprinted or online trust forms are not suitable for most people and can lead to unintended outcomes if not carefully drafted.
