On Monday, October 17, ElderCounsel released a new document set in ElderDocx, EC Medicaid Family Protection Trust. In short, this document set creates an asset-protected trust for the grantor's family. We would like to take a little time and discuss the design of the new document set.
The EC Medicaid Family Protection Trust is designed to protect the grantor's assets for the grantor's family. This is done by utilizing the Distribution Trustee technique and presetting or limiting some of the options that are found in the EC Medicaid Asset Protection Trust. You could create the same document using the MAPT, but the FPT makes it easier by preselecting and presenting only those options that give the best asset protection result.
The general rule in an asset protection trust is that if the beneficiary can't get to the assets, then neither can the beneficiary's creditors. But that rule only goes so far. If the trust is self settled—that is, funded with the beneficiary's own assets—then state law will likely allow a creditor into the trust to satisfy the grantor-beneficiary's liabilities, so long as the assets can be distributed to the grantor-beneficiary, even if the grantor-beneficiary has no power to require a distribution.
However, if the trust is settled by a third party—that is, funded by someone other than the beneficiary, like the beneficiary's parent—then the assets are generally protected from the beneficiary's creditors to the extent that the beneficiary is unable to independently access those assets.
For example, if a beneficiary has no distribution authority, and has no power to require a distribution, then neither does the beneficiary's creditors in most cases.
During the Grantor's LifetimeDuring the grantor's lifetime, the lifetime beneficiaries are either the grantor's children or named individuals. The grantor is not a beneficiary.
The trusteeship is bifurcated between the regular Trustee, who manages all of the trust assets, but can't make distributions, and a Distribution Trustee, whose only authority is to make distributions from the trust, entirely within the Distribution Trustee's discretion. Anybody can be the regular Trustee, including one or more of the lifetime beneficiaries, but the Distribution Trustee must be an independent party. The lifetime Distribution Trustee is named by the grantor when the trust is created. Distributions are at the Distribution Trustee's discretion and may be made to any one or more of the lifetime beneficiaries in equal or unequal amounts, regardless of needs.
This creates a third-party trust, protecting the assets for the benefit of the lifetime beneficiaries during the grantor's lifetime.
After the Grantor's Death
After the grantor's death, the trust divides into shares for named individuals or for the grantor's descendants.
If the trust divides into shares for the grantor's descendants, the descendant distribution option selected in the interview (per stirpes, per capita at each generation, or by representation) will determine how the division occurs. Regardless of the descendant distribution option selected, if all the children are living, the trust divides into equal shares for the children.
Each child's share will be held in trust with each child having authority to name his or her own Distribution Trustee (who must be an independent party). The child has no right to force a distribution, but can remove the Distribution Trustee and appoint another one if desired. If you have specified that the child will be his or her own regular Trustee, then you will have created a beneficiary controlled trust that is asset protected; the child will be able to manage the assets, but only the independent Distribution Trustee will be able to make distributions.
Upon the child's death, the child's share is likewise divided among his or her descendants and held in trust under the same terms. This creates asset protected trusts for each child's family line for as long as the applicable rule against perpetuities allows. If the trust divides into shares for named individuals, each share will be held in trust as described above.
Download a sample document set of the EC Medicaid Family Protection Trust created using ElderDocx.