People have some misconceptions about trusts. There are multiple different types of trusts, and they do not all accomplish the same things. With this in mind we would like to pass along three things that you should know about revocable living trusts.
Some individuals have the idea that you are surrendering personal control of property that you place into any trust. They assume that they can convey resources into a revocable living trust as a way to reduce assets as they attempt to qualify for Medicaid to pay for long-term care.
In fact, Medicaid will count assets that have been placed into a revocable living trust because you retain incidents of ownership.
No Asset Protection
Let’s say that you place resources into a revocable living trust and you are sued. These assets are not protected from creditors or litigants because you still have control of the funds. You can act as trustee and beneficiary, change the terms, or revoke the trust entirely and go forward with the assets.
No Tax Efficiency
If you are in possession of assets that exceed the estate tax exclusion amount you would do well to implement strategies that provide tax efficiency. Because of the fact that you still control the funds that you placed into a revocable living trust they are indeed part of your estate for tax purposes.
If these trusts won’t help you with asset protection, Medicaid eligibility, or tax efficiency, what good are they you ask? The answer for the most part is that revocable living trusts provide probate avoidance. With these devices the beneficiaries receive distributions from the trust outside of the process of probate, which can be time-consuming and expensive.