It is important to consult with an experienced estate planning attorney to determine which assets should be included in a trust and which should be excluded to protect them from potential creditor claims. By carefully considering these factors, you can ensure that your trust is structured in a way that best protects your assets and achieves your estate planning goals.
Assets Exempt from Medicaid Eligibility
When it comes to Medicaid eligibility, there are certain assets that are exempt from consideration. These assets are protected from being counted toward your financial eligibility for Medicaid benefits. It is important to understand what assets should not be in a trust in order to ensure that your estate planning complies with state and federal regulations. Include:
- Primary residence: Your primary residence is typically exempt from Medicaid eligibility calculations as long as the equity value is below a certain threshold set by your state.
- Personal belongings: Items such as clothing, furniture, and personal effects are generally not considered when determining Medicaid eligibility.
- Life insurance policies: The cash value of life insurance policies up to a certain limit is typically exempt from Medicaid eligibility calculations.
- Retirement accounts: Assets held in retirement accounts, such as 401(k)s and IRAs, are generally protected from creditors and should not be placed in a trust.
It is important to work with an experienced estate planning attorney to ensure that your assets are structured in a way that complies with Medicaid regulations. By understanding what assets should not be in a trust, you can protect your eligibility for Medicaid benefits and ensure that your estate planning goals are met. Contact Morgan Legal Group in New York City for expert guidance on estate planning, probate, elder law, Wills, and trusts.
Assets Subject to Creditor Claims
When setting up a trust, it is important to carefully consider which assets should be included and which assets should not be included. Certain assets are subject to creditor claims, which means that even if they are placed in a trust, they may still be vulnerable to creditors seeking to collect on debts. It is crucial to avoid including these types of assets in a trust to protect them from potential creditor claims.
Assets that should typically not be included in a trust to avoid creditor claims include:
- Jointly-owned property: Assets owned jointly with another individual may still be subject to creditor claims, even if they are placed in a trust.
- Retirement accounts: Assets held in retirement accounts, such as 401(k)s and IRAs, are generally protected from creditors and should not be placed in a trust.
- Life insurance policies: Proceeds from life insurance policies are typically exempt from creditor claims, so it is usually not necessary to include them in a trust.
- Business interests: Ownership interests in a business may be subject to creditor claims, so it is important to carefully consider whether or not to include them in a trust.
As the saying goes, “Nothing is certain but death and taxes.” But there is another unpleasant certainty that many of us will face at some point in our lives: dealing with our estate after we’re gone. For most of us, the primary motivation in planning our estate is to ensure that our loved ones are taken care of and our assets are distributed according to our wishes. One of the tools often used in estate planning is a trust. This legal entity allows you to transfer assets to a trustee who will manage and eventually distribute them to your designated beneficiaries. Trusts can effectively protect your assets and mitigate estate taxes, but they are not a one-size-fits-all solution. In fact, certain assets should not be placed in a trust. In this article, we’ll discuss what assets should not be in a trust and why.
1. Retirement Accounts
Retirement accounts, such as 401(k)s, IRAs, and Roth IRAs, should not be placed in a trust. These accounts already have their own designated beneficiaries and are subject to certain tax advantages. Placing them in a trust can result in unintended tax consequences, as the trust may be subject to higher tax rates and different distribution requirements. It’s best to name your beneficiaries directly on these accounts to ensure they receive the full benefit of your retirement savings.
2. Life Insurance Policies
Similar to retirement accounts, life insurance policies already have beneficiary designations, and placing them in a trust can create tax and distribution complications. Additionally, if you have significant life insurance policies, it may inflate the value of your estate and subject it to higher estate taxes. It’s best to keep life insurance policies outside of a trust and designate your beneficiaries directly.
3. Jointly Held Property
If you own property jointly with another person, such as a spouse or business partner, it should not be placed in a trust. The property will automatically pass to the joint owner upon your death, so there is no need for it to be included in your trust. However, if you own the property as tenants in common, you can include your share in your trust.
4. Tangible Personal Property
Tangible personal property, such as artwork, jewelry, and collectibles, should also not be placed in a trust. The reason for this is two-fold. First, placing these assets in a trust can make it difficult to maintain and keep track of them. Second, the value of these assets can appreciate over time, and it may be more beneficial for your beneficiaries to receive them directly. It’s best to create a separate plan for the distribution of these items outside of a trust.
5. Inherited Assets
If you inherit assets from a loved one, it’s important to keep them separate from your own assets and not place them in a trust. Inherited assets typically qualify for a step-up in cost basis, which allows you to avoid capital gains taxes on any appreciation that may have occurred before you received them. Placing these assets in a trust could result in significant tax consequences for your heirs.
6. Specially Designated Assets
Certain assets, such as health savings accounts (HSAs), 529 college savings plans, and foreign assets, are subject to special rules and may not be eligible to be placed in a trust. It’s important to consult with an estate planning attorney to determine the best course of action for these specially designated assets.
7. Personal Property with Minimal Value
While it’s important to have a plan for the distribution of your assets, it’s not practical to include every single item in your trust. Items with minimal monetary or sentimental value, such as clothing, furniture, and household items, should not be placed in a trust. Instead, consider creating a separate list of these items and designate who should receive them upon your death.
In conclusion, trusts can be powerful tools in estate planning, but they are not always the best solution for every asset. It’s essential to consult with an experienced estate planning attorney to determine the best course of action for your individual situation. Remember to review and update your estate plan regularly to ensure that your assets are protected and distributed according to your wishes.
