Have you been fooled by any of these revocable living trust urban legends? Below, we set the record straight. If you hear of any other living trust “facts” that you suspect might be an urban legend, consult with a qualified estate planning attorney.
URBAN LEGEND 1. Revocable Living Trusts Protect Your Assets from the Nursing Home
TRUTH 1. If it’s your revocable living trust, your assets are NOT protected from the nursing home or any other creditor. You need comprehensive insurance coverage and additional estate planning to protect you from the nursing home.
However, if you pass assets from your living trust (or your own name) to trust shares for someone else such as a spouse, child or parent, the trust assets are protected from their creditors such as a nursing home, divorcing spouse, or bankruptcy creditor.
There is another kind of trust, an income only trust, which is used to protect your assets from the nursing home. Your own living trust does NOT offer you asset protection for your own trust assets.
URBAN LEGEND 2. Revocable Living Trusts Always Avoid Probate
TRUTH 2. Your revocable living trust only avoids probate for those assets that are funded into the trust. If you die with any assets in your individual name, probate is guaranteed.
Funding means that all of your assets are titled into the name of your trust except for retirement and qualified annuities. Changing the title of these assets accelerates all of the income tax and that’s a BAD thing.
Instead, name your trust as the beneficiary of your retirement plans and qualified annuities. Your trust should be the beneficiary of your life insurance and other annuities as well.
Please refer to part two of this article, 4 Common Revocable Living Trust Urban Legends, to learn about two more revocable living trust urban legends.