Estate planning is something anyone can do at any age, but one topic that may be hard to face is long-term care. Planning for LTC involves the heavy subject of potential physical or mental disability that leaves someone incapable of managing their affairs.
Trusts help in a number of ways, depending on the type. The main two are revocable and irrevocable types of trusts and each has its strengths when planning for LTC.
Revocable trusts — asset transfer
These trusts give the grantor flexibility above all. Since these trusts are revocable, the grantor may change and amend any details about the trust over their life. Any assets placed into the trust are available for the grantor to retrieve. According to The American College of Trust and Estate Counsel, benefits of this trust include avoiding probate and, if necessary, appointing a trustee as a successor in case of LTC needs.
The downside is that the assets lack protection from creditors or spend-down strategies.
Irrevocable trusts — asset protection
If revocable means grantors have the ability to amend details, irrevocable means the opposite. The grantor funds this trust with his or her assets, after establishing the details of the trust, its beneficiaries and terms. After that, those assets belong to the trust instead of the grantor. Benefits, as CNN Money details, include avoiding estate taxes on these assets. Even if the grantor becomes incapable due to LTC needs, those assets do not count against them when considering income for federal aid.
The downside with these is that changes to the trust require the consent of all beneficiaries, making it more difficult compared to revocable trusts.
Each person’s needs are different when considering what trust matches those needs, and knowing the nuances may help someone plan for both golden years and unfortunate contingencies like long-term care.