Establishing Revocable & Irrevocable Trusts in Wisconsin

Irrevocable Trusts

Irrevocable trusts used to be more popular in the past, particularly in regards to avoiding nursing homes and Title XIX (“Title 19”) recovery costs against an elderly person’s estate. However, the policies of decent modern, nursing homes and hospice care facilities have largely changed. In the past, such facilities would often take individuals as patients who had transferred all of their property away into an irrevocable trust and/or gifted it into their children’s names. If such transfer of property had occurred beyond five years in the past, then the individual would presumably receive free Medicaid services from the government to cover his or her end-of-life care, without having to dip into and liquidate their own property. Such property would be successfully saved and transferred to the next generation and heirs so that they still receive a substantial inheritance, by avoiding the five-year lookback period for Medicaid recovery rules and the associated repayment of nursing home costs.

But many modern, good nursing homes and other end-of-life care facilities have changed their policies (due to the high costs of such services), so that they now may require collateral, or proof of substantial assets, in order to even give a patient a spot and bed at the facility. Decent facilities likely won’t take patients who only qualify for Medicaid, as the profits made to the corporate owners of the facility are higher by only taking in private patients who can show proof of substantial asset ownership and equity. While this business tactic on behalf of nursing homes can be seen as harsh or cruel, it unfortunately is a result of the complicated, free-market nature of the American economy. Therefore, most estate planning attorneys no longer advise their clients to give all of their property away or transfer such property into their children’s names ahead of time, to avoid nursing home costs. While it may save a greater inheritance amount for the next generation, such actions could also doom the client to receive sub-par care at a low-end facility that openly takes Medicaid and Title XIX patients, without requiring proof of collateral assets. Lower end facilities risk causing a miserable and uncomfortable end-of-life experience for the client, especially if any property that has been transferred to the client’s children is not easily given back. If children refuse to return the transferred property, so that their parent can pledge it as collateral to pay for good nursing home services, the client may be struck with a very unfortunate and sad scenario.

There are certain rare scenarios where an irrevocable trust may be suitable. Those who are potentially facing federal estate taxes, which currently only affect individuals with $12-23 million dollars in estate assets. Irrevocable trusts can also be handy in some business and family situations where a person or group of people want to create a permanent and unchangeable document. This can be the case in situations like managing a jointly-owned property.

Irrevocable trusts are also sometimes used to avoid creditors but they come with major repercussions – such as a loss of direct control or your own property or house, the inability to move, manage or sell your assets easily, and the cost and burden to the third party receiver-trustee of your property in maintaining it. There is also the risk of a judge in a court of law later striking down your irrevocable trust if it can be proven than it was created with an improper intent to avoid and defraud your current creditors. Therefore, irrevocable trusts are still often not used under such settings. You should consult an attorney whom is familiar with bankruptcy law and creditors’ rights to find a better, or hybrid, solution.

Revocable Trusts

A revocable trust, also called a living trust, not to be confused with a living will, is a legal document used to manage assets. The assets are then managed by a trustee appointed by the grantor, who may be the grantor initially. One of the primary purposes of revocable trusts is to avoid the probate process after the death of the grantor. These assets are instead distributed according to the terms of trust which can offer more privacy and control over the distribution.

There is a common misconception that revocable trusts can be used to protect you from creditors and debts. This is usually not the case since you can change a revocable trust’s terms at any time and control it directly, the law and government still see it as your property and therefore open to your creditors’ claims. However, there are micro-tactics that can help avoid your creditors with a trust, even though the trust isn’t truly “protecting” you from the creditors’ legal claims. For example, by naming your trust something generic, such as “The Blue Sky Trust,” it can make it harder for a creditor to find and connect the dots that you own the trust and its property. This tactic can be strengthened by other special privacy tactics, such as using a P.O. Box for your mail contact and avoiding an internet presence and social media generally, etc. While these actions won’t stop a creditor from winning a judgment if they sue you in court, they may make it harder to find and sue you in the first place from a purely practical standpoint.