While a Revocable Living Trust is a great estate planning method for avoiding probate and for preparing for potential mental incapacity, there are some things it just can’t do. Here are three examples:
- Protect Assets from Creditors. If someone wins a lawsuit against you that entitles them to money damages, they become what’s called a “judgment creditor.” A judgment creditor can levy on your property in order to collect the amount owed, and a Revocable Living Trust does not shield your property in this situation. You may be surprised how many people become defendants in lawsuits; all it takes is a car accident or the inability to pay someone money you owe them, and your property could be at stake. Fortunately, an estate planning attorney can help you develop an asset protection plan – as long as you plan ahead and don’t wait until a lawsuit is on the horizon.
- Automatically Avoid Probate. Simply having a Revocable Living Trust in place is not enough to keep your property from being probated. Your trust needs to be properly funded, meaning that you have to transfer your assets into the trust, so that the Trustee has access to them after you pass away. Any property that’s left out of your trust may be subject to the probate process. This is why everyone who has a Revocable Living Trust should also have a special type of will, called a “pour over” will. This document acts as a catch-all, so that if some of your property is not funded into your trust at the time of your death, it will “pour” into your trust as part of the probate process, and will ultimately be distributed according to the terms of your trust.
- Reduce Your Taxes (Without Special Additions). As stated above, the main purposes of a Revocable Living Trust are to help your loved ones avoid probate and plan for mental incapacity. It’s also used to keep your personal affairs private and confidential. Often, married trust makers opt to incorporate an AB trust into their Revocable Living Trust in order to gain death tax planning advantages, but without this addition, a Revocable Living Trust offers no estate tax benefits.
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.