Before you start funding trust accounts, reports MarketWatch in "What you should know before placing assets in a trust,” seek the advice of your estate planning attorney so they can give you instructions on performing to what one attorney calls the "Trust-Funding Litmus Test.” MarketWatch has nicknamed it T.R.U.S.T. (Tax, Return Rate, Usability, Safety and Transfer).
- Tax: When you fund an irrevocable trust, know that your tax situation can change immediately. Based upon your state of origin, you may be liable for additional state taxes. There may also be capital-gains taxes. The trust doesn't receive a step-up in basis, just a transfer of your cost basis.
- Rate of return: If the U.S. has a target inflation of 2%-3%, and you're getting 0.5% in money-market investments, you're moving backward. But if you place assets in a trust, you have the ability to build a good offense against inflation. Inflation continues to grab dollars out of our pockets every year.
- Usability: Sometime called liquidity, this refers to your trustee's ability to access these funds. This should be a priority, and you should understand your investment timeline and plan for when funds might or will be needed.
- Safety: Don't forget the Age 100 Rule. Take your age and subtract it from 100. This should be the starting point in determining how much of your portfolio and funds should be at risk vs. being guaranteed.
- Transfers: Talk to an Elder Law attorney to learn about Medicaid guidelines that are applicable for your state. In addition, if you or a loved one is a veteran or the widow of a veteran, have the Elder Law attorney explain VA benefits.
One last note: don't place your faith in an Internet search for answers to your unique situation. This will only result in confusion and possibly leave you without the benefits you need. Talk with a qualified attorney for peace of mind and accurate advice.
Reference: MarketWatch (February 25, 2016) "What you should know before placing assets in a trust”