You’ve probably heard or seen the word “trust” and know the conversation isn’t about trust in people. When it comes to finances and protection, a trust is a legal process that allows you to add something specific to an estate plan. In general terms, you can add things to your trust via a will like money, jewelry, and even a house. The idea is to protect your assets when you’re incapacitated or pass away so that outside entities can’t touch it without a person called a trustee that you name to manage your assets when you’re no longer capable.

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There’s two kinds of trusts; revocable or irrevocable, and within those two types of trusts are other types of trusts, which we don’t get into here. The main difference is that anything you put into a trust that you might want to remove later on is a revocable trust, whereas anything put into an irrevocable trust means nothing can be taken out until you can’t control it any longer, even by you, but also by pretty much no one else can either, which means it’s perfect for protecting your assets and for potential long term care issues.

For instance, if you put jewelry, money and things like that in an irrevocable trust and later on you go into the hospital or a nursing home, “most” of those assets can’t be touched by anyone, depending on the state. Nursing homes will bill your estate for the costs of you staying there until your insurance coverage runs out, and as long as there’s enough money in a bank account, all is good.

But at a certain point, Medicaid will come into the picture, and even within the irrevocable trust, depending on the state, a certain amount of assets might need to be used to reach the amount that the states require for you to be allowed to be covered by Medicaid. Nothing else can be touched in the trust after that point until you’re deceased, in which case the trustee you’ve selected will be able to follow the rules of the will and dispose of items as requested. In this instance, “dispose” doesn’t mean throwing anything away; it means following the requests of a will as to who gets what, and how much.

Just to clarify, the owner takes care of everything within a revocable trust, but the trustee takes over when the owner can’t do it any longer, whereas the trustee is the only one who can remove anything from an irrevocable trust once it’s created. This means you’ll want to make sure you pick someone you trust implicitly.

Many times, if you engage the services of a lawyer when you want to create a will, they’ll add language creating a trust at the same time, sometimes at no cost. After that, you can talk to your lawyer about how you might want to use your trust, but it also helps to speak to a financial consultant or a tax consultant to determine what’s more important to you based on your current financial state and what you might want to protect for others.

For instance, putting assets into an irrevocable trust allows you to protect a large dollar of assets that can’t be touched, but should only be used if you still have enough left to keep paying for everything else while you’re alive. A revocable trust allows you to keep changing which assets and how much you want to keep in there, along with making it easier for your trustee to handle your affairs when needed.

To learn more about trusts, here’s a link to information about revocable trusts and another for irrevocable trusts.