Dear Michael: We’ve been farming for many years. We were talking to friends and they mentioned they have a living trust to handle their estate planning. We’ve checked into various trusts – is this the one that protects our estate from long-term care costs? – Living Trust.
Dear Living Trust: In its simplest terms, a living trust is another way for you and your husband to own property together. You have sole ownership – if one of you owns the property. You are allowed to pass your property to whomever you desire during your lifetime. However, if you are married, your spouse may have ‘spousal rights’ to the property upon your death – even if you direct it to someone else. Each state has their own laws regarding ‘spousal rights.’
You have joint tenancy with right of survivorship as another option. This type of ownership means there are two owners and the ‘survivor’ will automatically inherit the property from the first owner’s death. It doesn’t matter what your will states to the contrary, the property is now owned by the survivor. Why? Because joint tenancy WROS states there are two owners and upon death, the one who died is removed from the deed.
People use this type of ownership all the time to pass property between spouses so they don’t incur probate costs. It is, however, a terrible way to own property between non-spouses as the ‘with right of survivor’ means the property will pass to the last owner standing. I’ve come across a few cases were siblings owned property JTWROS and their shocked to find out if one of them dies, their name is just removed from the deed….and so on, and so on until the last person standing owns the property.
Next is tenants in common, and undivided half interest in the property. Undivided means you can’t draw a line down the middle of the property and claim this is your half. However, you can sell, gift or give your tenant in common interest to someone else – even upon your death – again subject to the ‘spousal rights’ in your state. Just because your spouse would automatically get her half of the tenant in common property doesn’t mean she has no right to claim on your estate.
This is the most common way for non-married people to own property. Siblings, business partners, non-related people normally have tenants in common. Now we get into trusts. Trust are either revocable or irrevocable. Revocable trusts (or living trusts) are, as the name states, revocable, changeable, and are merely another method for owning property. Irrevocable trusts cannot be changed once property is deeded to the trust without the consent of the trustee. If you make yourself the trustee, then you have a revocable trust – not an irrevocable one.
An irrevocable trust is a carefully planned ownership designation naming someone as trustee and what rights and duties this trustee will perform as long as the trust owns property. You decide what these rights and duties of the trustee are as a part of the trust. Many irrevocable trusts are found in wills when someone does not want property to go directly to heirs or beneficiaries who must meet the conditions give to the trustee before they receive the assets. Common conditions might be a certain age, a certain life milestone, or an eventual event in their beneficiary’s life. These are testamentary irrevocable trusts.
Other people set up irrevocable trusts to avoid having their assets go to long-term care. These assets must be transferred and free of any ownership rights of the grantors for at least five years before they are not included for Medicaid purposes. Revocable trusts have no protection from long-term care as you can revoke or change them. Medicaid states if you have this right, then you can revoke your trust and pay for your care.
Revocable trusts are also promoted so people tend to believe they will avoid probate, however, in of themselves, they are a tremendously difficult documents to read. Most people name their children as secondary trustees, but not many children are close to being able to handle the fiduciary responsibilities of a trust upon their death. This leads them to hiring an attorney anyway upon death negating all probate savings.
“Keeping the Family Farm in the Family”
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