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Many people worry about what share the government may take when it comes to their own estate, or when they receive an inheritance. However, the fear of government seizure of estates is often blown out of proportion. That said, control and privacy when it comes to your personal affairs are certainly valid objectives. Trusts are a popular tool for their ability to provide that protection.

A trust is a legal arrangement in which one party transfers ownership of assets to another party, called the “trustee.” The trustee holds and manages the assets on behalf of the “beneficiaries” according to the instructions in the trust document. Trusts may offer numerous benefits, including asset protection, privacy, and the ability to avoid probate, helping to preserve wealth for future generations. However, not all trusts accomplish all of the above benefits and are never a one-size-fits-all solution.

One of the primary reasons individuals consider trusts as a part of their estate planning is to protect their assets from potential government claims. While trusts cannot guarantee absolute immunity from all forms of government action, they can serve as a valuable defense against certain scenarios.

Medicaid is a government program that provides medical assistance to individuals with limited financial resources. Placing assets in a Medicaid trust, well in advance of needing long-term care, can help qualify an individual for Medicaid. This can also protect the beneficiaries from having to pay the government back for the Medicaid benefits received. This is not a simple type of planning, so working with an experienced estate planning attorney well in advance of needing benefits is crucial.

For extremely wealthy people, trusts can also serve as a tool for federal estate tax planning. By transferring assets into certain types of trusts, these clients can potentially reduce the overall estate tax burden on their estate, leaving more assets for their beneficiaries.

While trusts offer significant advantages for protecting assets, there are some limitations to keep in mind. The effectiveness of asset protection through trusts largely depends on the timing of the trust creation, and the type of trust used. Transferring assets into a trust when facing imminent legal action or government claims may be deemed as fraudulent and ineffective. For those transferring assets to a trust for Medicaid qualification purposes, they typically must complete the transfer several years before applying for benefits, or the assets will not qualify for protection. Additionally, transferring assets into certain types of trusts may not shield them from existing liabilities or creditor problems. Creditors could potentially challenge the transfers in court to prove fraudulent intent.

In some extreme cases, the government may have the power to access assets held in a trust under certain circumstances, such as unpaid taxes or criminal activities. Therefore, it is essential to consult with a qualified estate planning attorney to ensure that your trust aligns with the laws and regulations in your jurisdiction.

While trusts are powerful, flexible tools to consider in your overall planning, they are not a foolproof solution to all issues. Their effectiveness depends on several factors, including the type of trust, timing of creation, circumstances surrounding the assets, and the client’s ultimate objectives. We can help you tailor a strategy that meets your unique needs and maximizes the benefits for you and your beneficiaries, safeguarding your hard-earned estate for generations to come.

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