A living trust (also known as a revocable trust) can be an important estate planning tool, however, living trusts are complex and not necessarily for everyone.
First a word of warning: in order for a living trust to function properly and efficiently, a living trust document should only be drafted by an experienced elder law attorney with a specific client’s needs in mind. An attorney needs expertise in elder law in order to properly know what a living trust can and cannot do and how to determine whether or not a living trust is even appropriate for a specific client. There is no such thing as a generic living trust document that will work for everyone.
A trust is a legal entity that holds property and assets in the name of the trust. The trust is the legal owner of any trust assets. A trustee, usually a person or corporate entity, manages trust assets in accordance with the instructions in the trust document for the benefit of trust beneficiaries.
What makes a trust a living trust is that the trust creator is also the trustee of the trust and retains full control to move assets into and out of the trust.
One of the main benefits of placing assets in a revocable trust is that trust assets avoid probate. However, this benefit only applies to assets actually in the trust. Any non-trust assets will still have to go through the probate process. Even if an individual has a will that directs all non-trust assets to the trust upon death, i.e. a pour-over will, those non-trust assets will still go through probate before going to the trust.
Other benefits of a trust include the ability control how and when the beneficiaries of a trust will receive their inheritance. For example, a trust could hold assets for beneficiaries until they reach a certain age or allow for distributions over time instead of in one lump sum.
There are certain things a living trust does not do. A living trust will not exclude assets from counting toward Medicaid eligibility. If you have a living trust and apply for Medicaid nursing home coverage, your trust assets may still need to be spent down before you become eligible. A living trust also does not protect assets from potential creditors.
Because a living trust does not shield assets from Medicaid eligibility, an individual should meet with an elder law attorney to determine how, if at all, a living trust should factor into an individual’s overall estate plan.
Another consideration that requires consultation with an elder law attorney is the potential incapacity of the trust creator. Merely naming a single successor trustee may not be enough to protect an individual’s assets if the successor trustee cannot perform that role, does not have other powers to direct assets into the trust, or perform other estate planning tasks.
To see if a living trust is appropriate for your estate plan please call Martha C. Brown & Associates at (314) 962-0186.