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Revocable Living Trusts: The Facts and Fiction

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. In truth, there are a number of benefits as well as some drawbacks to a RLT. While many default to a last will and testament when planning the future of their estate, I urge seniors to consider the RLT as a potentially preferable option.

What is a Revocable Living Trust?

The revocable living trust (RLT) has been gaining in popularity over the past decade, particularly among the baby boomer generation. Created during an individual's lifetime, a RLT determines how property which is titled in the name of the trust is to be managed and distributed while he or she is alive and upon death. The RLT's grantor, or creator, retains the power to freely amend and revoke the trust as well as to reacquire its assets. 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, which generally means it cannot be amended or revoked by the grantor, unless it expressly provides that is revocable.

The Advantages

The use of a RLT as an estate planning tool provides the following benefits over a last will and testament:

  • 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
  • Continuation of management of the trust assets in the event the grantor becomes disabled or incapacitated

The Disadvantages

  • You must transfer (re-title) all of your assets, including the titles to any real property, to the RLT during your lifetime. Additionally, any assets acquired during the trust's existence must be transferred to the trust.
  • The cost of having an attorney prepare a RLT can be a little than the cost of preparing a last will and testament.

The Fiction

While a RLT offers many benefits, it does not have any distinct estate tax planning advantages over a last will and does not necessarily eliminate the need for a last will in its entirety. It is entirely possible that you may not have transferred all of your assets into a RLT during your lifetime. This creates a need for the existence of a will - to transfer the assets that are in your name alone at the time of your death. Furthermore, assets transferred to a RLT are not protected for purposes of Medicaid eligibility or long-term care planning. Since the trust is revocable, it is considered an available resource for Medicaid and would be subject to a spend down to meet eligibility levels. It is important to fully understand the advantages and disadvantages of all available options when planning the future of an estate. I would advise anyone considering a revocable living trust or last will to consult with an experienced attorney to determine the best course of action for their circumstances.

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