A Revocable Living Trust is simply a Trust created while a person is still alive (aka “inter-vivos” trust) versus one created in the person’s Will. They are created to allow for management of a person’s assets during their lives and avoiding probate after death. During the person’s lifetime these Trusts can be revoked and changed at any time. This sounds like a benefit, and in some ways it may be, but it also creates problems. Since the Trust can be revoked at any time the assets contained in the Trust are still considered to be under the person’s control and thus they:
- do NOT protect these assets from divorce, lawsuits, and other creditors.
- do NOT protect your assets from Medicaid and other government benefits and would need to be spent down according to the Medicaid rules prior to qualifying for these benefits.
- do NOT avoid Inheritance Taxes.
Another benefit that proponents of these Trusts point to is the avoidance of probate, but that too is not necessarily the benefit it may sound like because:
- The initial cost to set up a Revocable Living Trust is many times more than the cost of a Will. In addition, after death, a lawyer is often needed to administer the distribution of the Trust proceeds, prepare the Inheritance Tax form (since these Trusts do NOT avoid Inheritance Taxes) and the cost of that process is similar to the cost of probate.
- Probate in Pennsylvania is relatively straight forward and the court costs (which is really all that may be avoided with a Revocable Trust – but wait! — see below) are relatively low.
- Even when a person has such a Trust they should also have a Will to capture any assets not properly transferred into or titled into the Trust. Thus, most people will also have to have a Probate proceeding (along with the court costs) as well as administration of the Trust assets, adding to the costs after death and resulting in less of your hard earned dollars going to your loved ones.
So, you may be wondering if there are any benefits to a Revocable Living Trust and is it appropriate for any person? The answer is yes, a Revocable Living Trust may be appropriate if you own real estate in another state which would necessitate another probate proceeding (called an ancillary probate) in that other state. Since many other states’ probate processes are more onerous and costly than Pennsylvania such a Trust can avoid the probate process in that other state and allow the asset to be transferred more easily. However, there are other ways to handle out of state property, so a careful evaluation should be made by a knowledgeable elder law attorney to determine whether a Revocable Living Trust is the best way to handle your specific situation.
Contact me if you’d like more information oabout trusts and estate planning.