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Home » Four Myths About Trusts Debunked

Four Myths About Trusts Debunked

April 13, 2020 by Stephen Unsworth

trusts mythsThere are far too many myths that circulate about estate planning. When people buy into them, they sometimes make mistakes that yield negative consequences. In this post, we will dissect some misconceptions about trusts so that you can go forward with sound information.

Trusts are only for the rich.

This assertion would be true if the word “only” was not part of it. High net worth individuals that face estate tax exposure can absolutely benefit from the utilization of certain types of trusts.

These would be irrevocable trusts. Assets that have been conveyed into this type of trust would no longer be part of an estate for tax purposes. As the name would indicate, the grantor of the trust cannot dissolve it and take back direct personal possession of the property.

However, there are other types of trusts that can be quite useful for people from various walks of life. You should certainly discuss the details with a licensed attorney before you make any uninformed decisions.

You lose control of assets that you convey into a trust.

This is another notion that is not based in fact. Even if you have an irrevocable trust, you could maintain some control of the outcome in indirect ways. This is because of the way the trust is structured in the first place.

The statement is entirely untrue when it comes to a very commonly used device called a revocable living trust. If you were to establish this type of trust, you would have the power of revocation from the start. You could revoke the trust at any time, and it would no longer exist.

As the grantor of a living trust, you could act as the trustee while you are alive and well. You would maintain control on this level, and you can also serve as the beneficiary.

It is impossible to get property out of a trust after it has been signed over.

If you have a revocable living trust, since you are the beneficiary and the trustee, you can take any property out of it any time. It should be noted that you can also convey property into the trust after you have established it.

This statement is not even entirely true as it applies to some types of irrevocable trusts, because there can be distributions.

Assets in a living trust wouldn’t count if you apply for Medicaid to pay for nursing home care.

There is a concept in the legal realm called “incidents of ownership.” As we have touched upon previously, assets in an irrevocable trust could be part of an estate tax efficiency plan because they would be removed from your estate.

This is an instance of surrendering incidents of ownership. Since you have total control of assets in a living trust, and you can revoke it if you want to, you are retaining incidents of ownership. For this reason, the assets would count if you apply for Medicaid.

To obtain Medicaid eligibility, you would establish an irrevocable income-only trust. You would surrender incidents of ownership because you would not be able to dissolve the trust or touch the principal. This being stated, you would be able to continue to receive income that is earned by the principal.

If you apply for Medicaid at some point in time, the assets in the trust would not be counted. At that point, income that is generated by the trust would not be available to you because of Medicaid income limits.

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Stephen Unsworth
Stephen Unsworth
Stephen A. Unsworth is admitted to practice in both Vermont and Maine, and has more than 30 years of experience in estate planning and business law. His mission is to provide quality estate planning services, including assistance with Living Trusts, Wills, Medicaid Planning, Probate, Trust Administration, Powers of Attorney, Special Needs Planning, and Family Limited Partnerships.
Stephen Unsworth
Latest posts by Stephen Unsworth (see all)
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Filed Under: Estate Planning Tagged With: Estate Planning, Trusts

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