A revocable living trust is created by a grantor and the grantor often acts as the trustee of the living trust. The revocable living trust can be modified or altered as the grantor wishes and the granter retains substantial control over trust assets.
Many people create revocable living trusts because of the benefits that these trusts provide. However, revocable living trusts have some important limitations as well- especially when it comes to asset protection.
A Rutland asset protection lawyer at Unsworth LaPlante, PLLC can provide advice to clients who wish to create a revocable living trust. Our legal team will discuss your goals and help you to determine if a revocable trust is right for you or if other options may better help you to protect your assets.
Is a Revocable Living Trust the Right Choice for Asset Protection?
A revocable living trust can protect your assets because it can allow you to make sure they are carefully managed even if you cannot manage them. You can do this by naming a backup trustee.
While you’ll usually be the trustee at the time of trust creation, a backup trustee can be named at the same time. In the event you become physically or mentally incapacitated and cannot make or communicate your decisions, your backup trustee can take over asset management quickly and seamlessly. With the backup trustee bound by a fiduciary duty to act in the best interests of the trust granter and beneficiaries, the assets should be kept safe.
A living trust can also allow for assets to transfer outside the formal probate process in order to save time and to get those assets to their new owners more quickly. If you are leaving behind a farm, business, or other assets that require intensive ongoing day-to-day management, a living trust may be key to protecting those assets by putting the new owners in charge much more quickly than if ownership of the asset gets tied up in probate court for weeks or months.
Unfortunately, while living trusts let you facilitate the easy transfer of assets and ensure assets are properly managed, this is essentially the outer limit of the asset protection that a living trust provides. A living trust still leaves you very vulnerable to loss of assets for many reasons.
One big issue is a living trust does not help you to protect your assets in case you need to get nursing home coverage. Medicare doesn’t cover custodial nursing care and pays for nursing homes only in very limited cases, like when medical intervention is needed rather than just assistance with activities of daily living. Nursing home care can be astronomically expensive without insurance to pay the bills. You could end up losing your assets if you don’t have a plan in place to get your care paid for.
Medicaid is the primary payer of nursing home care bills in the United States; however, you may not be able to get immediate access to Medicaid. In Vermont, the epartment of Children and Families provides information on qualifying for Medicaid when you are 65 or older, blind, or disabled. To qualify, you must meet income and asset limits.
When you put your assets into a living trust, they still count in determining Medicaid eligibility. This means you can be disqualified from Medicaid nursing coverage until you’ve spent down assets. Had you used an irrevocable trust instead, the assets may have been safe.
Another big issue is that a living trust doesn’t actually let you avoid or reduce estate taxes since the money and property in the living trust is still considered part of your estate. Estate taxes are assessed by the federal government on larger estates. According to the Internal Revenue Service, your estate will be taxed once it reaches $5.45 million as of 2016. This amount increases periodically.
When you have significant assets- including a business or a family farm- protecting those assets from being lost due to high estate taxes is of paramount importance. A living trust doesn’t help you under these circumstances, whereas an irrevocable trust may allow for you to ensure assets transfer without being counted as part of your estate during probate.
Living trusts do have some advantages over irrevocable trusts, even though irrevocable trusts provide more asset protection in some ways. You need to consider pros and cons of both to make your choice regarding how best to protect your financial security.
How Can a Rutland Asset Protection Lawyer Help With a Revocable Living Trust?
To learn more about revocable living trusts, irrevocable living trusts, and asset protection, join us for a free seminar. You can also contact us to get personalized advice that is tailored to your situation. You can give us a call at (802) 879-7133 or contact us online today so we can get started on protecting your future.