A living trust is an estate planning instrument that allows a person to move assets into a trust to be managed by a trustee for benefit of named beneficiaries. Grantors can serve as their own trustee and also be beneficiaries of the trust during their lifetime. The revocable living trust can be amended or revoked during the grantor’s lifetime.
It is necessary to be cautious about creating a revocable living trust as there are a lot of insurance agents, financial planners and for-profit companies marketing and selling prepackaged trust products that may not be right for your situation. Typically, the marketing efforts are geared toward the elderly and may include information sessions, webinars or email communications. The companies attempt to persuade potential clients using scare tactics about probate, taxes and long-term care costs.
Let’s debunk some of myths around revocable living trusts so that you can ward off some of the persuasive tactics used by these prepackaged trust sellers.
Myth #1: A Living Trust Avoids Probate
In Maryland, probate is not overly expensive like it is in some states. While there may still be some valid reasons to avoid it, such as privacy, it is not necessary to create a trust simply to avoid probate. Other factors should exist. A living trust may be capable of avoiding probate if all of the assets owned by the decedent are retitled and properly funded into the trust. Usually, this is not the case, and additional assets exist that will still require estate administration. A pour-over will designates how assets not funding the trust will be distributed.
Myth #2: A Living Trust Minimizes Estate Taxes
Regardless of whether the person leaves behind an estate that is distributed by a will or a trust, the estate tax liability may still be avoided due to the high exemption rates. Currently, an individual is exempt from gift and estate tax for $12.06 million.
Myth #3: A Living Trust Protects Assets from Creditors
This is simply not true. Due to the fact that the grantor can revoke the trust during his or her lifetime, the assets of the trust may be subject to claims of creditors.
Myth #4: A Living Trust Protects Assets Allowing a Person to Qualify for Medicaid
This is also incorrect. The assets and income of a revocable living trust will be counted in determining whether the grantor is eligible for Medicaid.
Truth about Trusts
There are many situations where a revocable living trust is an effective estate planning tool. For those who are concerned about privacy, a trust can be very effective. Wills go through probate and become public record. Trusts do not. If you want to control the distribution of assets to your beneficiaries rather than let them inherit outright, then a trust will be an excellent way to set up a distribution schedule and conditions to inherit. If you are facing a serious illness or worry about future cognitive decline and may not be able to manage these assets on your own, then setting up a trust and appointing a trustee to manage the assets can be a huge benefit.
For more information on creating a revocable living trust and ensuring that it will accomplish your planning goals, contact the experienced attorneys at Stouffer Legal in the Greater Baltimore area. You can schedule an appointment by calling us at (443) 470-3599 or emailing us at office@stoufferlegal.com.
