What is a Trust for an Elderly Parent?
Learn about creating a Trust for your elderly parent to protect you both financially. Discover which type of Trust is best for you and how to set one up.
A Trust is set up to ensure your loved one is protected from fraud or mismanagement as they age or become ill. It is also beneficial to you as it can help avoid specific expenses against your family's valuable assets. There are different kinds of trusts, such as a Living Trust, an Irrevocable Trust, and a Revocable Trust. This article will discuss why your parents need a Trust and how to establish one, the differences between an Irrevocable and Revocable Trust, which will work best for you, and additional ways to protect your parent's valuable assets.
Do My Elderly Parents Need a Trust?
We will all need some assistance managing and protecting our assets at one point or another. Unfortunately, seniors are particularly susceptible to financial harm, especially from potential scammers, creditors, etc. Suppose your parents have valuable personal property or real estate. In that case, they may want to consider taking the necessary steps to create a Living Trust, which will protect those assets, allow beneficiaries to avoid probate after their loved one's passing, and be used as an essential estate planning tool. Furthermore, a Living Trust will give your loved one more control than a Will because they will be able to create parameters or conditions and choose a trusted advisor to assist in making important decisions.
Setting Up a Trust Fund for Your Parents
Trust Fund refers to "an estate planning tool that establishes a legal entity to hold property or assets for a person or organization." A Trust Fund may include various assets such as money, property, stock and bonds, a business, or a combination. It is designed to hold and manage assets on someone else's behalf with the help of a neutral third party. To create a Trust Fund, three parties will need to be involved, including the grantor, the beneficiary, and the trustee. It is also crucial to note that a Trust can be a Revocable or Irrevocable Trust, which we will discuss more in the next section of this article.
When establishing a Trust Fund for your parents, follow these steps as your initial guide:
- List their assets (property, stocks, vehicles, life insurance policies, etc.)
- Collect all necessary paperwork.
- Decide who will be the sole grantor.
- Choose beneficiaries (such as yourself, siblings, other family members, etc.)
An Irrevocable Trust is a Trust that cannot be modified, amended, or terminated without permission from the beneficiary or beneficiaries. Irrevocable Trusts typically are best for protecting assets, reducing estate taxes, and accessing government benefits. The grantor of an Irrevocable Trust will have ownership of the assets of the Trust, legally removing all their rights of ownership, effectively relieving them of any tax liability on the income generated by the assets.
How Does an Irrevocable Trust Work?
An Irrevocable Trust takes away certain assets from a grantor's taxable estate and moves them to a Trust. The Irrevocable Trust cannot be changed or modified without the beneficiary's permission.
Who Owns the Assets in an Irrevocable Trust?
In an Irrevocable Trust, legal ownership of the Trust, which may include assets such as a business, property, financial investments, or a life insurance policy, is controlled by a trustee.
Why Would Someone Want an Irrevocable Trust?
An Irrevocable Trust can be selected for a wide variety of reasons. Circumstances where you might want to consider an Irrevocable Trust include a desire to complete the following tasks:
- Minimize estate taxes.
- Become eligible for government programs.
- Protect your assets from your creditors.
The significant difference between Revocable Trusts and Irrevocable Trusts is that terms and conditions can be modified with a Revocable Trust. With a Revocable Trust, the grantor maintains control of the assets and can change the terms of the Trust. However, the downside of a Revocable Trust is the lack of tax benefits and protection from creditors.
Protecting Elderly Parent’s Assets
As your loved one ages and their mental or physical state changes, you will want to talk to them about their wishes and finances. Taking sensible preventative measures and helping your loved one decide what to do with their finances and assets will benefit not only them but you. To avoid risks and protect your elderly parent’s assets, consider taking the following steps:
- Learn more about their estate, including their future financial goals.
- Block scammers.
- Set up Automatic payments.
- Sign your parent up for credit reports and identity protection.
- Establish a Living Trust.
If your loved one is already showing signs of memory loss or cognitive challenges, read our next article, "Creating Great Visits for a Loved One with Memory Loss," to learn the best ways to enjoy cherished moments together.
Putting the House of an Elderly Parent in Trust
The main benefit of putting your parent's house in a Trust is that it bypasses probate – an estate's judicial process when someone passes away. The family (or chosen beneficiary) will inherit your loved one's home in a private transaction after their death, avoiding a stressful probate court process.
Discover what other legal documents you'd need for aging parents.
Find Senior Care Near You
The process of protecting your loved one and your family from financial harm is complex and can be challenging. However, it can also be an opportunity to have deeply connected conversations, setting a precedent for collaboration and agreement.
Let Referah's team of experts help you with the process. We work closely with seniors and their families in communities across the country. Talk to one of our experts about finding professional senior care and support near you today.