People's Law Guide
Martin H. Cohen, Esq.
IS A REVOCABLE LIVING TRUST RIGHT FOR ME? By Martin H. Cohen, Esq. August 18, 2005 For years the public has heard stories about the “horrors of probate” and the “cure-all” known as the Revocable Living Trust. Clients frequently want my opinion as to whether a trust would be suitable for them. Unfortunately, they are usually pre-sold on the idea of creating a living trust by people who have a vested interest in “selling trusts.” When it is appropriate for the client, I completely support the use of a revocable living trust in an estate plan. However, I do not believe that you should get involved in creating a revocable living trust unless you understand the basics of what it can and cannot do for you. This article is intended to reveal some of the basics on the subject by presenting myths and facts of revocable living trusts. A revocable living trust is a legal instrument that you create to hold title to your assets during your lifetime and to manage and dispose of them after your death. There are three parties to the arrangement: (1) the grantor or settlor who transfers assets into the trust, (2) the trustee who holds title to those assets, and (3) the beneficiary who receives the income and principal of the trust. Initially, you can act as all three parties. If you become disabled or die, a “successor trustee” (an individual or a bank) steps in to take title to the assets and manage them. During your lifetime, you are generally the sole beneficiary. Upon your death, the assets will either be managed for the benefit of other beneficiaries or distributed outright to them. You can modify or terminate a revocable living trust during your lifetime for so long as you have the mental capacity to do so. All references to trusts in this article are to revocable living trusts. Myth: If I transfer my assets into a trust, they will be protected from my creditors. Fact: False. If you are sued, your creditors will be able to reach your assets owned by the trust during your lifetime. Even after your death, creditors may be able to reach assets that you have transferred to a trust. Myth: If I put my assets into a trust, they will be protected from nursing homes. Fact: False. Assets in trusts are considered to be owned by you when your financial eligibility for Medicaid is evaluated by the Department of Children and Families. Other types of trusts are sometimes used in establishing your eligibility for Medicaid. Myth: A revocable trust will save estate taxes. Fact: Even if you have a taxable estate, this is generally not true. Unless your estate is greater than .5 million in 2005 or million in 2006, it will probably not be subject to estate tax. Myth: Living trusts guarantee privacy. Fact: This is partially true. Assets owned by the trust may have to be disclosed in tax and probate proceedings. However, even the inventory of assets in a probate proceeding is confidential. Myth: Using a trust will avoid a will contest. Fact: This is partially true. However, an interested party may contest a trust in the same manner that he or she could contest the validity of a will. Myth: Creating a living trust will guarantee that my family will not have to file probate proceedings when I die. Fact: Often the creation of the trust does not completely avoid probate proceedings. To do so, you must meticulously transfer all of your assets into the trust and be sure that non-trust assets such as life insurance policies, annuities, and IRA accounts have designated beneficiaries. Even if there are no assets to be probated, Florida law requires that the trustee file a notice with the court in the county where you lived. Myth: Creating a trust will save me money. Fact: This is questionable. Living trust plans require more legal expense when you create the trust, and there is always a possibility that circumstances (such as the need for Medicaid assistance) will force you to revoke the trust before you die. On the other hand, with larger estates, the trust will usually remain in force, and the expense of creating it will not be wasted. Myth: Once created, the trust will be easy for me to maintain. Fact: When you first create the trust, you must change titles on all of your assets in order to fund the trust. In addition, for the rest of your life, you must provide copies of the trust (or an abbreviated version known as a “certificate of trust”) to bankers and stockbrokers to be sure that your accounts are properly titled in the name of the trust. Myth: By creating a trust, someone will be available to manage my assets during my lifetime if I am no longer able to do so. Fact: This is generally true. Even though someone could also manage your assets with a power of attorney, banks will more readily deal with your successor trustee than with your agent under a power of attorney (even though the law requires the bank to do so). The trust document and the laws concerning trusts give more guidance to a successor trustee in managing your trust than they give to your agent under a power of attorney. Myth: Creating a living trust will protect my family from the expense and delay of probate. Fact: This is generally true. However, if the estate is not subject to estate tax, the probate can usually be completed in less than a year and often within 6 months. There are also abbreviated forms of probate that are even faster and less expensive. As to the “expense,” legal fees are negotiable depending upon the complexity of the estate. To see if a revocable living trust is right for you, get an objective opinion from an experienced Elder Law attorney who can advise you on traditional estate planning issues, as well as the long term care considerations of creating a revocable living trust. Mr. Cohen has been practicing law in Broward County since 1972 and limits his practice to Elder Law and Estate Planning. He is a member of the National Academy of Elder Law Attorneys™ and The Academy of Florida Elder Law Attorneys. He can be contacted at 954-315-0355, and he maintains a website at www.ElderLawyer.TV