• I have heard there are many types of Trusts.  What type Trust do you emphasize as the “core” of one’s estate planning?
• Exactly what is a Revocable Living Trust?
• What are some of the specific things a Revocable Living Trust is designed to accomplish?
• I have heard that probate is avoided if one has a Will, and that probate is required only if one passes away without a Will.  Is this accurate?
• I know of persons who passed away and their estates were not required to be probated.  How could this be possible?
• Can a Revocable Living Trust shelter the assets placed in the trust by the creators of the trust, from creditors and so-called “spend-down provisions” associated with such programs as Medicaid?
• Does everyone “need” a revocable living trust?
   

Q: I have heard there are many types of Trusts.  What type Trust do you emphasize as the “core” of one’s estate planning?

A: The Revocable Living Trust. This Trust is designed to establish the “basics” of minimizing/eliminating unnecessary expenses from one’s estate, and thereby preserving more of what one has accumulated by self-discipline and living within one’s means. More of our estate can thereby be passed to our families or other beneficiaries.

Q: Exactly what is a Revocable Living Trust?

A: A Revocable Living Trust is a “Legal Person” that is created to hold title or ownership to your property. You no longer own the property as an individual because the “legal person” (the Living Trust) now owns it. However, you retain control of the assets because you are the Trustee of the Living Trust that now owns them. This is a Trust that you create while you are living, in contrast with a “Testamentary Trust” that is created by a Will following your death. It is “revocable” because you may amend, modify, and/or revoke it while you are living.

Q: What are some of the specific things a Revocable Living Trust is designed to accomplish?

A: One of the primary reasons an increasing number of people are creating revocable living trusts is to avoid the probate of their estate when they pass from this life. Whereas each state has jurisdiction over its own probate procedures, generally people are attempting to avoid the delay of distributions from their estates to their intended beneficiaries, costs that in some instances can significantly deplete an estate, preserving their privacy (which is not preserved in Probate), thereby avoiding the opportunity for public scrutiny of such items as reading their Will, exposure to the public of the kind and amount of assets owned by them at their death, listing the specifics of their indebtedness, creditors, debt amounts, as well as the appraised values of items in their estate. Also, by allowing their revocable living trust to own their real estate in all states where situated, people avoid the necessity of a Will having to be probated in each state where their real estate is located. Further, in 2011 the federal Estate Tax is scheduled to return, and considering the anticipated unknown exemption amount to which each individual will be entitled, it is important that both spouses’ estate tax exemption be preserved. In contrast to a Will, where the estate tax exemption is lost by the first spouse to die, both estate tax exemptions are preserved by a properly drafted revocable living trust. Sometimes the drafter of a Will attempts to avoid this happening when the first spouse dies by providing in the Will for a Testamentary Trust to exist following one’s passing. But probate is not avoided using that approach, whereas probate is avoided and both estate tax exemptions are preserved in a revocable living trust.

Q: I have heard that probate is avoided if one has a Will, and that probate is required only if one passes away without a Will.  Is this accurate?

A: No. An estate is subject to the possibility of probate when one passes away with a Will, as well as without a Will.

A: Such an individual’s estate could have consisted entirely of what is termed “Beneficiary-Designated” Assets. Such assets pass from the deceased owner to other people because such an asset provided for beneficiaries to be named by the owner of the asset. This category includes such assets as IRAs and Life Insurance. Also, certain types of jointly-owned real estate by individuals married to each other, can delay probate by having the deceased spouse’s undivided one-half ownership pass to the surviving spouse “by operation of law” and outside of probate when the first spouse passes away. It is then when the surviving (second) spouse passes away that the possibility of probate rears its head.

A: No. It is as important to understand what a Revocable Living Trust cannot do as to understand what it can do. Because the trust is Revocable, it is considered “under the control” of the maker of the trust. Because of this, what is “under the control” of an individual is generally subject to both taxation and creditor claims.

Also, Title XIX of the Social Security Act, commonly known as Medicaid, became law in 1965. It is jointly funded by federal and state governments to help provide proper medical care for the poor. While Medicare is primarily for persons over age 65 who have paid into the program through payroll taxes, MEDICAID is available for all age groups provided they meet the income and asset requirements. Put bluntly, people wonder whether assets they place in a revocable living trust can avoid inclusion in one’s estate so that their estate will be “low enough” to meet the asset requirements to qualify them for Medicaid. The answer is No.

Sometimes in their eagerness to “promote” revocable living trusts, proponents are not as careful as they should be with their “claims” of what revocable living trusts can provide. Be careful to question advocates about their claims for revocable living trusts. As earlier stated, it is as important to understand what such a trust cannot accomplish as it is to understand what it can provide.

Q: Does everyone “need” a revocable living trust?

A: No. We regard it as unethical, a breach of fiduciary responsibility, self-serving, and “immoral” to urge someone to spend any amount to obtain something they do not need. Having said that, we will be unable to help you determine whether creating a revocable living trust would be a good decision for you without meeting with you privately so that questions and answers may be provided that would not be appropriate in a public setting. There are several mistaken assumptions made by some people. (1) Some believe there is a “threshold” (minimum) amount they must have in assets to justify creating a revocable living trust. Whereas that can have some bearing, generally it is the kind of assets rather than the amount that is pivotal to making your decision. (2) Some have been told that they must “have” at least $600,000 before a revocable living trust can be justified; some have even stated they have heard they must have this amount in cash! Whoever has provided that information apparently has confused an “old” estate tax exemption amount with the context of a trust.

Finally, carefully scrutinize the “amounts” you are being asked to provide for the creation of your trust program. What fees exist that will be in addition to the “initial” one of creating the trust? Is assistance in your “funding” your trust an additional amount? If so, how is it calculated? Is there a so-called “annual maintenance fee”? How expensive will be “future consultations”? Approximately how many revocable living trusts has the organization you are interviewing created over the years? Have they ever “administered” a trust when a client passed away? Will they be expecting to act as your professional financial advisor in addition to creating your revocable living trust? Will they be planning to create “vehicles” in addition to your revocable living trust, about which you are not clear? Do you understand the objectives and values of those trust “vehicles” that are to be created?

There are many fine professionals, firms, and organizations available. Attempt to select people who will be a good “fit” for you, your objectives, your values, and what is affordable for you.