A LWT is a legal document that names your personal representative (executor), can provide for burial instructions, provides a way to distribute your estates as you see fit, includes methods for payment of debts and taxes, and can name guardians for your minor or disabled children.
Only assets that are held in your name alone pass through the provisions of your LWT. Such assets become "probate" assets. Jointly-held assets, assets with beneficiary designations (such as life insurance, retirement accounts, payable-on-death accounts), and assets held in a living trust are not part of your will, and thus not part of the probate process.
Many people mistakenly believe that if you die without a LWT, the State will get everything.
This is rarely the case. What happens instead, is that the State establishes a "LWT" for you. Depending upon your family situation - whether you are married or not - whether you have children or not - will determine who gets what and how much.
In terms of Medicaid Planning, a LWT in and of itself does little to preserve and protect your hard-earned assets.
However, one important aspect of a LWT is the availability of establishing a Testamentary Special Needs Trust for the benefit of your disabled spouse, child or grandchild.
With respect to your disabled children or grandchildren, you may establish such a trust to preserve that child's Medicaid and other government benefits, while at the same time preserve his or her inheritance.
With regards to a disabled spouse, more sophisticated planning is required. Because of the new Elective Share Statute, more careful coordination is needed between the LWT and Elective Share Trust. In short, the new law now leaves open the opportunity for the State to assert the surviving spouse's election to take against 30% of the estate. In such a case, the traditional Testamentary Special Needs Trust for a spouse can be significantly depleted.
As with any planning tool, careful coordination with your attorney is crucial.