Trusts for Real Property (home, real estate, rental property)

Several methods are available to protect your real property (houses, condos, rental and commercial properties) from creditors and adverse court judgments. For example, the properties could be transferred to an existing or newly-created Limited Liability Company (LLC). The organizers (members) of the LLC can still manage the property, but the LLC, a separate legal entity, will own it and provide a measure of protection against creditors and judgments. The transfer of property is fairly straightforward if there is no outstanding mortgage on the property. Another way to protect the property is to transfer it to a trust. Depending on the purpose and goals, many types of trusts can be set up, offering various degrees of protection and control over the property. Certain trusts, such as Qualified Personal Residence Trusts (QPRT), will also offer gift and estate tax advantages when the real estate passes to beneficiaries. Advanced planning includes Family Limited Partnerships (FLPs) and LLC interest owned by trusts, which offers additional advantages and protection.

Buildup Equity Retirement Trust (BERT)

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IRA Trusts

There is a special trust for IRA funds, and some other retirement accounts are also eligible. Although there is no need to transfer IRA funds to a trust because the money will pass to your designated beneficiaries even without a trust, the trust offers certain advantages. If the beneficiaries keep the money inside the trust after inheriting it and only take minimum required distributions, the money accumulates inside the trust without being taxed. This may create considerable wealth after the money compounds year after year, income-tax free. The children or grandchildren of the person who settled the trust may become millionaires with time. The trust also protects the money from divorcing spouses of beneficiaries, who may get up to 50% of the IRA money unprotected by the trust! Other reasons to have an IRA trust are to protect the money from beneficiaries’ poor money management abilities, to prevent blowouts (premature taxed withdrawals by beneficiaries), and to preserve the beneficiaries’ eligibility for government benefits.

SSI and Medicaid Eligibility Planning Trusts

Transferring your property and assets to certain kinds of trusts for the benefit of your children or grand children, may make you eligible for government-funded assistance. However, not all trusts will preserve your eligibility and protect your assets so that they can pass to your beneficiaries. The trust must be created a certain way and properly structured to ensure the maximum benefit. There is a penalty period of up to 36 months that affects a person’s eligibility for SSI, and a Medicaid look-back period of 60 months when the property is gifted, sold, or transferred for less than fair market value, so you should start planning early.

Special Needs (or Supplemental Needs) Trusts for Disabled Beneficiaries

These trusts allow you to transfer money and property to children with special needs or to disabled individuals, while allowing these beneficiaries to still qualify for Supplemental Security Income and Medicaid. If property structured under Social Security laws, these trusts will allow the beneficiaries to enjoy a better quality of life in addition to receiving government benefits. These trusts can supplement (hence the name) the government benefits by providing for beneficiaries’ recreation and entertainment, transportation, and trips, while the government benefits provide for basic necessities such as housing, food, and clothing. These trusts can be established with the beneficiaries’ own funds and property, or with funds and property of third persons, such as family members. There are important limitations, advantages and managing options depending on who sets up the trusts, when and how, so you should speak to an attorney who will explain the differences. These include tax issues, whether creditors of the beneficiary or settlor can reach the trust, and whether the funds in the trust will have to be used to pay the government back for the care of the disabled individuals. A settlor other than the beneficiary can transfer money to such trusts without a penalty for Medicaid eligibility.

Advice from Bucks County Estate Planning Attorney

Keeping your Will, cash and valuables in safe deposit boxes has certain disadvantages. State laws regulating access to these boxes vary, but unless certain precautions are taken during the life of the box renter, it will take a while and some effort for the beneficiaries to get to the assets in the safe deposit box if the renter dies. The beneficiaries will need a court order, and they will need an officer or authorized employee of the bank renting the box to be present. This makes the Will less accessible to individuals who are unaware of the process. The contents of the box will be inventoried, and the beneficiaries will not even be able to take the cash and valuables until they are authorized to do so by the court for the decedent’s estate.

CategoryEstate Planning

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