If you have not researched the subject extensively, you may assume that a trust is a single type of document that serves a universal set of purposes. In fact, this is not the case. There are various different types of trusts that can be used to satisfy different objectives, though some of them can accomplish multiple aims simultaneously.
One major difference between trusts is the right of revocation. You can revoke or dissolve some types of trusts, and there are also irrevocable trusts.
At first glance, you may naturally think that you would prefer a revocable trust, because you would have the power to dissolve the trust if your life circumstances change. Though this can be comforting, a revocable living trust may not be the right choice depending on your objectives.
The matter of ownership is an important legal concept. With a revocable living trust, you are retaining incidents of ownership, because you can rescind the trust at any time and take back direct personal possession of the property that was conveyed into it.
Because of the fact that you would be retaining incidents of ownership, a revocable living trust would not satisfy certain estate planning goals that some people have.
For example, asset protection and estate tax efficiency are important for some people. Assets in a revocable living trust would not be protected from lawsuit settlements or judgments, and they would be part of your estate for tax purposes.
There is also the matter of nursing home asset protection. The majority of elders will someday need help with their activities of daily living, and nursing homes and assisted living communities are extremely expensive. This type of care is considered to be custodial care. Medicare will pay for convalescent care after an injury or illness, but it will not pay for custodial care.
The Medicaid program does pay for long-term care. Since Medicaid is a need-based program, you cannot qualify if you have significant assets in your own name. To react to this dynamic, you could potentially convey assets into a Medicaid trust. This would be an irrevocable trust, because assets in a revocable living trust would be countable for Medicaid eligibility purposes.
Value of Revocable Living Trusts
To this point, we have looked at some of the reasons why you may not want to use a revocable living trust. However, a revocable living trust can be the right choice for some people.
The fact that you do not lose control of the assets can be a positive depending on your objectives. Plus, you can control the actions of the trust while it is intact, because you can act as the trustee and the beneficiary.
You can include spendthrift protections if you do not want to allow for lump sum inheritances, and assets in a revocable living trust could be distributed to the beneficiaries outside of probate. This is a time-consuming and potentially expensive legal process.
Make Informed Decisions
As you can see, you have decisions to make when you are planning your estate. If you would like to discuss everything with a licensed professional, send us a message through this page to set up a free consultation: Indianapolis IN Estate Planning Attorneys.
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.