Change is inevitable, and it comes in many shapes and sizes.  Death, disability, and divorce are three of the most common changes in life that can wreak havoc on an estate plan.  If your estate plan is not flexible, there could be unintended consequences.  With the increasing popularity of revocable trusts, whether drafted by attorneys or available for purchase off the internet, too many trusts are on the market that are poorly drafted and do not provide mechanisms for dealing with changed circumstances.

For example, there is a possibility that we may all fall ill and require care at home or in a nursing home.  Intending to avoid exhausting all your assets, it might be prudent to apply for Medicaid. To create Medicaid eligibility, the assets in your revocable trust may need to be transferred to another individual, such as a spouse, or to a trust.  At this point, you may have not only fallen ill, but you may have also lost your capacity.  I have reviewed many trusts where upon the creator’s incapacity, the assets of the revocable trust can no longer be distributed from the trust.  In essence, the assets are frozen, and no Medicaid planning can be implemented.  To avoid this situation, your revocable trust should include language allowing the successor trustee, upon your incapacity, to transfer the trust assets to your children, a spouse, or to a trust.  By allowing for these transfers, Medicaid eligibility can be achieved.

Another situation that cannot be reasonably foreseen at the time of drafting is the ability or willingness of a successor trustee to act.  When drafting, it is prudent to appoint multiple successor trustees.  What if the trustees you have selected years earlier, however, have no desire to serve as trustee? Your revocable trust must have proper language allowing for the resignation and appointment of successor trustees.  Often, little time is spent on crafting this type of language.  Most trusts simply name the successor trustees with nothing more.  If a trustee of a trust does not want to serve, and there is no mechanism to appoint a successor trustee, Court involvement is inevitable.

Considering that we many all fall ill and require care, it’s curious that most estate plans do not contemplate the possibility of a beneficiary becoming disabled.  I am often consulted by families of beneficiaries who stand to inherit assets from an estate while these beneficiaries are also receiving Medicaid benefits.  The receipt of an inheritance will likely render a Medicaid recipient ineligible for Medicaid.  A simple solution is to include a supplemental needs trust in your estate plan.  The assets within the supplemental needs trust are protected for Medicaid eligibility purposes.  Commonly referred to as a “trigger supplemental needs trust,” its provisions would go into effect if a beneficiary is disabled at the time they are to inherit from an estate.  Since we have no idea whether a beneficiary will become disabled, I include trigger supplemental needs trusts in all my estate planning documents, including revocable trusts.

Finally, with the divorce rate being so high, it may be prudent for your revocable trust to provide that upon your death, the trust’s assets are to be distributed to lifetime trusts for the benefit of your children.  If the assets are distributed to your children outright, and your children become divorced after your death, it is possible that the inherited assets could be considered marital assets subject to equitable distribution.  This could be avoided by using a trust.

You should review your revocable trust in light of the above considerations.

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