In celebration of International Skeptics Day, I will walk through what a Revocable Living Trust is not:
A Revocable Living Trust is Not a Irrevocable Trust
The term “revocable” means that something is capable of being canceled, altered, &/or revoked. When someone creates a revocable living trust, let’s refer to them as the “creator,” they are creating this type of trust, and more often than not, remain in control and in the drivers seat for all purposes (even tax purposes) until they die (or of course, become incapacitated). On the other hand “irrevocable” trusts are non-revocable trusts — they cannot be cancelled or changed once they are created outside what the document states. With an irrevocable trust, the creator cannot modify or terminate the trust outside the express terms of the trust or without approval from everyone named in the trust or court, etc. So if the creator wants to remove a beneficiary from an irrevocable trust, that beneficiary probably needs to agree and sign off, unless the trust had clear language how a beneficiary could be removed (i.e., beneficiary must be married to my sister, if not, the beneficiary is removed as a beneficiary). The reason for this inflexibility is that as soon as the creator signs the documents for an irrevocable trust, he or she removes all control (i.e., ownership) rights to the assets.
A Living Trust is NOT a Living Will
A living trust is not to be confused with a living will. A living will is a completely different type of document – it is neither a trust nor a will. In a living will, you state your preferences about life-prolonging medical treatment and procedures. This document is included in the class of health care or medical advance directives and may also be referred to as a Directive to Physicians. (As a side note, a living will is also not a DNR, which is something that can only be completed with your health care provider which a lawyer is not).
So, why name a trust a “living” trust? Well, because the trust is a hungry. Once you create it, you have to figure out what to feed it. Sound familiar?
Unfortunately, many people create a living trust without placing any assets into the trust. Some people put only a small dollar amount (say $10) into the trust initially. This is known as an “unfunded” trust. Until then the trust remains essentially empty, but it is in place if you wish to add more to it. Funding involves the re-tilting of assets and changing of beneficiaries to coordinate with your living trust. Funding coordinates assets with your distribution plan, ensures probate is avoided for such assets, and ensures a more efficient and cost-effective administration at death. As part of our firm’s estate planning process, we work with clients to ensure a smooth funding of your living trust.
A Living Trust Will Not Avoid Nursing Home Costs
The property in a living trust still belongs to you because you can take it back anytime. Thus, it will be included in calculations of your eligibility for Medicaid, which helps pay for nursing home care and provides other benefits. A living trust together with customized powers of attorney and attorney counsel can ,equip you and your family with the proper tools to ensure the best care, or enable future qualification for Medicaid if and when the need arises.
A Living Trust Will Not Avoid Bankruptcy Creditors
The property in a living trust still belongs to you because you can take it back anytime. The tax identification number of the trust is the creator of the trust’s social security number. If it is a joint revocable living trust, either Settlor’s SSN may be used – and typically each Settlor’s SSN is used interchangeably. Thus, every asset in a living trust remains your asset and will not provide any creditor protection to a Settlor during their life. There are trusts that can be used for asset protection purposes, but a revocable living trust is not one of them.