A friend of ours recently reached out to my wife, who is in Thailand, asking, “how much do you charge for a trust?”. My wife practically runs the immigration side of the practice. She is very involved in that and does a fantastic job. However, she is completely uninvolved in the tax planning, financial planning, trusts, and estate planning side of things. When she was asked that question, it occurred to her that my charges are all over the map and she has no idea what I “charge for a trust”. She messaged me on the office’s secure chat function (as a result of COVID-19, my office has developed such capabilities that there is little difference between my wife being in a village in Thailand, and her being behind her desk in Lowell). We then had a secure video conference (although for this, I likely could have used Zoom or something less secure). I asked her “what does the client want to accomplish?” She had not asked, and we agreed that she should arrange a telephone conference between myself and the client. Video was unnecessary in this case, and our friend might not be so open to it.
The first question I asked was “Why do you want a trust?” The answer to this question is usually along the line of ‘my friend has one’ or ‘a financial advisor suggested I get one’ or ‘I read about them online’ or some other generic statement about having heard that having a trust was a good idea. They certainly can be, but you need to determine what you are trying to accomplish. In further discussion, I learned that the financial planner’s concern was avoiding probate. That, of course, would only require a Revocable Inter-Vivos Trust (RIVT), often referred to as a “living trust”. The nice thing about an RIVT is that the Grantor (the person making the trust) maintains full control. As long as they are alive, they can change anything about the trust or even get rid of it altogether. They can even appoint themselves Trustee, and thus retain full day to day control over their property, essentially as if the trust did not exist. However, when the Grantor dies, the property of the trust goes directly to the secondary beneficiaries without passing through probate. While the RIVT offers no creditor protection in life, it does offer creditor protection in death.
The downside to an RIVT is that if you go into a nursing home, MassHealth simply will not care that you put your property into an RIVT. They will treat everything in it as if you still own it, because in reality you still do. A Trustee in Bankruptcy will treat it exactly the same way. Truth be told, judgement creditors and whatnot will be able to get at it as well. Although you have avoided probate, you have not avoided estate tax. On the federal level, that is not such a big issue, as the current estate tax exclusion is eleven and a half million dollars. However, in Massachusetts, if you have over a million dollars in countable assets, which is something quite different and more expansive than the size of the estate, you are subject to the estate tax. As such, estate tax planning in Massachusetts is still important, even if it is not so important for most people on the federal side. Of course, if you are looking for those protections, you have to give up control. In fact, if you are looking for Medicaid protection, you must give up every kind of control and do it more than five years before you go into a nursing home. This creates quite a dilemma. On the one hand, you have to beat the nursing home by five years, so you do not want to wait too long to do it. On the other hand, these trusts are irrevocable; you cannot be the trustee, and you really are giving up your interest in the property and any say in what happens to it. As such, it is easy to set up the trust too young. For example, one of the best assets to put into a Medicaid trust is your home. You can set it up so you can live in the home for the rest of your life and a single-family home does not generate income for you anyway. However, if you are doing this, then you are also making the decision that you are going to own this house until the day you die with no ability or reason to refinance it or take money out. As a result, Medicaid trusts are generally not so popular among young and middle-aged people. However, there are other irrevocable trusts that allow for creditor protection and do not have quite the same draconian requirements as the Medicaid trust. Irrevocable trusts can also be used to bring down the size of the taxable estate, even if the property still counts towards the one-million-dollars of countable assets. However, as the trust is irrevocable, the decision to make the transfer is permanent and generally speaking cannot be reversed. In addition, for all irrevocable trusts, a lot more care has to go into the drafting of the trust. You do not like something, you can not just terminate the trust and to get the protections that you want you are also quite limited in your ability to change the trust.
Beyond that, there are also life insurance trusts and gifting trusts and a whole host of other trusts that further complicate the landscape. In fact, life insurance trusts are quite wonderful in Massachusetts, because without them, life insurance is part of the taxable estate, even though it is not part of the probate estate. As there are a variety of trusts that accomplish a variety of purposes, just calling a lawyer’s office and saying, ‘how much do you charge for a trust?’ does not work. I am happy to meet with anyone (although I currently prefer but not require that the meeting be virtual) concerning trusts. Just understand that the very first question I am going to ask you is “why do you want the trust?” or “what do you want the trust to accomplish?”
For more information please see my video:
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