Revocable trust are created by people, called grantors or settlors. The grantors or settlors create a trust agreement or a declaration of trust to create the trust and dictate its terms. The settlor transfers property into the trust. The property is managed by a trustee for the benefit of someone who the grantor names as a beneficiary. Revocable trusts bifurcate possession of the property and actual legal ownership of it. The grantor can keep using the property and getting benefits from it. The settlor can actually name himself as the trustee, so he can retain continued control over the property. However, the settlor does not own the property any more once it has been put into trust – the trust owns it.
Revocable trusts can serve many important purposes, including making it possible to ensure that assets are managed in case of incapacity and that assets transfer seamlessly after death. However, there are also limitations to this type of trust.
Before you create a revocable trust, you need to ensure that this trust will help you to accomplish your goals. There are also other options for trust creation which may provide more protections and benefits than a revocable trust does, although these options also have limitations as well- they just have just different limitations.
Trust laws in Vermont are complex, and since there are different types of trusts, it is best to get legal advice from an experienced estate planning attorney if you are considering the creation of any kind of trust. Unsworth LaPlante, PLLC knows the trust laws and can provide you with guidance, insight, and advice on how best to put these laws to work for your benefit. Contact us as soon as possible if you are thinking about creating a trust.
A Guide to the Limits of Revocable Trusts
Vermont Statutes Online Title 14A, Chapter 6 sets forth the rules for revocable trusts. According to Vermont law, trusts are presumed to be revocable when created, unless the settlor expressly specifies that the trust should be irrevocable.
When a trust is revocable, the settlor can make changes and modifications over the course of his life. The settlor can even revoke the trust upon compliance with the revocation requirements contained in the trust declaration. If the trust doesn’t provide a method of revocation, executing a written letter or otherwise communicating intent to revoke is sufficient.
Revocable trusts provide flexibility due to the chance to make changes and even dissolve the trust. Revocable trusts also make it possible to name a backup beneficiary so someone can step in to manage assets held in the trust in the event the settlor becomes incapacitated. Asset transfer after death is easier as well, and probate can be avoided. While there are clearly good reasons to create a revocable trust, you must also understand the limitations. For example:
- Revocable trusts don’t help you to avoid income or estate taxes. There are some situations where the IRS actually discriminates against revocable trusts and the total tax bill could end up being higher than it would have been if no trust had been created.
- Revocable trusts don’t help to protect you from creditors. During your lifetime, creditors are able to go after the assets owned by the revocable trust if you find yourself in debt and facing judgments.
- Revocable trusts don’t allow you to avoid spending down assets before qualifying for Medicaid. Medicaid benefits aren’t available if you have a lot of assets. While it is possible to create a trust, transfer assets into it and not have those assets count when assessing Medicaid eligibility, this does not work with a revocable trust. Assets held in the revocable trust still are considered to belong to you for Medicaid qualification purposes.
- Revocable trusts can still be challenged. Some people create revocable trusts with the goal of preventing their heirs from fighting over their estate. However, just as a will can be challenged, a revocable trust can also be challenged as well.
These are just some examples of limits on what revocable trusts can do. You need to determine if there are other types of estate planning tools that will remove limitations or whether a revocable trust is your best option.
How Montpelier Estate Planning Lawyers Help With Trusts
To learn more about revocable trusts, join us for a free seminar or contact us for personalized legal advice that is based on your specific situation and goals. You can give us a call at (802) 879-7133 or contact us online today so we can get started on creating trusts that benefit you and your heirs.