Revocable Living Trusts: The Facts and Fiction

By: Anthony J. Enea, Esq.

Over the last ten to fifteen years much has been written about the Revocable Living Trust (RLT), by estate and financial planners, some of which has been factually accurate and some of which has been purely fictional.

What is a Revocable Living Trust?

A RLT is a written instrument created during the lifetime of the Grantor (the person establishing the trust) and is effective during his or her lifetime. It is distinguishable from a testamentary trust, which is part of the Last Will and Testament, and only becomes effective upon the death of the testator (the drafter of the Will).

The Grantor of a RLT retains the power to freely amend and revoke the trust as well as to reacquire its assets. This is unlike an Irrevocable Trust, which generally cannot be amended or revoked by the Grantor.

In New York the same person can be both the grantor and sole trustee so long as one or more other person holds a beneficial interest (can be vested or contingent - for the present or future). A lifetime trust will be deemed to be irrevocable unless it expressly provides that is revocable.

The Advantages (Over a Last Will)

The use of a RLT rather than a Last Will and Testament as an estate planning tool provides the following benefits:

  • Avoids the cost and time of probate and its attending expenses and requirements;
  • It is more difficult to challenge than a Last Will and Testament;
  • Protects Grantor's privacy (unlike a Will, its provisions are not accessible for public review);
  • Its assets will be available for immediate distribution after the death of the Grantor, subject to insuring sufficient assets are available to pay estate taxes and debts;
  • No gift tax consequences of making transfer of assets to the trust; and Continuation of asset management of Trust assets in the event of disability or incapacity of Grantor.

The Disadvantages

  • You must transfer all of your assets, including title to any real property to the Trust during your lifetime. Additionally, any assets acquired during the Trust's existence must be transferred to the Trust; and
  • The cost of having an attorney prepare a RLT can be greater than the cost of preparing a Last Will and Testament.

The Fiction

A RLT does not have any estate tax planning advantages over a Last Will and Testament.

The RLT does not eliminate in its entirety the need to have a Last Will. It is possible that you will have not transferred all of your assets into a Living Trust prior to your death, thus, creating the need for the existence of a Will to transfer the assets that are in your name alone at the time of your death.

Furthermore, the assets transferred to the RLT are not protected for purposes of Medicaid eligibility and long term care planning. Because the trust is revocable the assets are considered an available resource for Medicaid eligibility purposes and would be subject to a spend down to Medicaid eligibility levels.

In conclusion, it is advisable that one consult with an attorney before executing a Revocable Living Trust to fully understand the advantages and disadvantages of its utilization.

Anthony J. Enea, Esq. is a managing member of Enea, Scanlan & Sirignano, LLP with offices in White Plains and Somers, NY. Mr. Enea is the Immediate Past Chair of the New York State Bar Association's Elder Law Section and was recently named Westchester County's Leading Elder Care Attorney at the 2013 Above the Bar Awards. He can be reached at 914-269-2367 or aenea@aol.com.