As we age, preserving the future of our assets becomes more of an immediate need. It can be difficult to establish an estate plan that will protect your home and other property while still allowing you to plan for your future and maintain some level of financial independence. In many cases, it becomes a decision between two documents: life estates vs. irrevocable trusts.
Below is a description of these estate planning tools and well as pros and cons for using each method. You can use this as a starting point in your decision-making process, but you will also want to contact an estate planning attorney to discuss your specific needs.
What are life estates?
Life estates allow you to split ownership of property between the giver and the beneficiary. By establishing a life estate, a giver can reduce the value of their assets, which may help with eligibility for Medicaid or other long-term care options.
A life estate lasts for the lifetime of the giver, who retains some interest in the property. This ownership is shared, which means the giver cannot sell the property without permission from all named beneficiaries. When the giver is deceased, property is transferred fully to the beneficiary, often avoiding the probate process.
What are irrevocable trusts?
Through irrevocable trusts, you transfer ownership of your property to the trust and its beneficiaries. This is a good option for those who feel that their home or other property will disqualify them from Medicaid benefits. There must be five years between the creation of the trust and application for Medicaid, however, or included assets will be considered when determining Medicaid eligibility.
Once an irrevocable trust is created, the giver cannot change it or take back control of their property. Beneficiaries cannot sell the property, however, unless they also have been named the trustee. As with the life estate, irrevocable trusts also help you avoid probate when the giver is deceased.