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IS A REVOCABLE
LIVING TRUST RIGHT FOR ME?
By Martin H. Cohen,
Esq.
For years the public has heard stories about the
“horrors of probate” and the “cure-all” known as the Revocable Living Trust.
Clients frequently want my opinion as to whether a trust would be suitable
for them. Unfortunately, they are usually pre-sold on the idea of creating
a living trust by people who have a vested interest in “selling trusts.”
When it is appropriate for the client, I completely support the use of a
revocable living trust in an estate plan. However, I do not believe that you
should get involved in creating a revocable living trust unless you
understand the basics of what it can and cannot do for you. This article is
intended to reveal some of the basics on the subject by presenting myths and
facts of revocable living trusts.
A revocable living trust is a legal instrument that
you create to hold title to your assets during your lifetime and to manage
and dispose of them after your death. There are three parties to the
arrangement: (1) the grantor or settlor who transfers assets into the trust,
(2) the trustee who holds title to those assets, and (3) the beneficiary who
receives the income and principal of the trust. Initially, you can act as
all three parties. If you become disabled or die, a “successor trustee” (an
individual or a bank) steps in to take title to the assets and manage them.
During your lifetime, you are generally the sole beneficiary. Upon your
death, the assets will either be managed for the benefit of other
beneficiaries or distributed outright to them.
You can modify or terminate a revocable living
trust during your lifetime for so long as you have the mental capacity to do
so. All references to trusts in this article are to revocable living
trusts.
Myth: If I transfer my assets into a trust,
they will be protected from my creditors.
Fact: False. If you are sued, your creditors
will be able to reach your assets owned by the trust during your lifetime.
Even after your death, creditors may be able to reach assets that you have
transferred to a trust.
Myth: If I put my assets into a trust, they
will be protected from nursing homes.
Fact: False. Assets in trusts are
considered to be owned by you when your financial eligibility for Medicaid
is evaluated by the Department of Children and Families. Other types of
trusts are sometimes used in establishing your eligibility for Medicaid.
Myth: A revocable trust will save estate
taxes.
Fact: Even if you have a taxable estate, this
is generally not true. Unless your estate is greater than $1.5 million in
2005 or $2 million in 2006, it will probably not be subject to estate tax.
Myth: Living trusts guarantee privacy.
Fact: This is partially true. Assets owned
by the trust may have to be disclosed in tax and probate proceedings.
However, even the inventory of assets in a probate proceeding is
confidential.
Myth: Using a trust will avoid a will contest.
Fact: This is partially true. However, an
interested party may contest a trust in the same manner that he or she could
contest the validity of a will.
Myth: Creating a living trust will guarantee
that my family will not have to file probate proceedings when I die.
Fact: Often the creation of the trust does
not completely avoid probate proceedings. To do so, you must meticulously
transfer all of your assets into the trust and be sure that non-trust assets
such as life insurance policies, annuities, and IRA accounts have designated
beneficiaries. Even if there are no assets to be probated, Florida law
requires that the trustee file a notice with the court in the county where
you lived.
Myth: Creating a trust will save me money.
Fact: This is questionable. Living trust
plans require more legal expense when you create the trust, and there is
always a possibility that circumstances (such as the need for Medicaid
assistance) will force you to revoke the trust before you die. On the other
hand, with larger estates, the trust will usually remain in force, and the
expense of creating it will not be wasted.
Myth: Once created, the trust will be easy for
me to maintain.
Fact: When you first create the trust, you
must change titles on all of your assets in order to fund the trust. In
addition, for the rest of your life, you must provide copies of the trust
(or an abbreviated version known as a “certificate of trust”) to bankers and
stockbrokers to be sure that your accounts are properly titled in the name
of the trust.
Myth: By creating a trust, someone will be
available to manage my assets during my lifetime if I am no longer able to
do so.
Fact: This is generally true. Even though
someone could also manage your assets with a power of attorney, banks will
more readily deal with your successor trustee than with your agent under a
power of attorney (even though the law requires the bank to do so). The
trust document and the laws concerning trusts give more guidance to a
successor trustee in managing your trust than they give to your agent under
a power of attorney.
Myth: Creating a living trust will protect my
family from the expense and delay of probate.
Fact: This is generally true. However, if
the estate is not subject to estate tax, the probate can usually be
completed in less than a year and often within 6 months. There are also
abbreviated forms of probate that are even faster and less expensive. As to
the “expense,” legal fees are negotiable depending upon the complexity of
the estate.
To see if a revocable living trust is
right for you, get an objective opinion from an experienced Elder Law
attorney who can advise you on traditional estate planning issues, as well
as the long term care considerations of creating a revocable living trust.
For a free telephone consultation, you may call me at (954) 315-0355.
If you have questions about anything on this
website, or if you wish to schedule an appointment, contact Mr. Cohen at
(954) 400-5511
or by
E-mail.
Mr. Cohen maintains two offices for the practice of
Estate Planning, Elder Law and Disability Law in Broward County, Florida
for the convenience of his clients:
Flamingo Falls Professional Center
1806 N. Flamingo Rd.
Suite 300
Pembroke Pines, FL 33028
and
Crossroads One
8201
Peters Rd., Suite 1000
Plantation (Fort Lauderdale),
FL 33324
For those of you who are unfamiliar with South Florida geography, Broward
County has 30 municipalities, including:
Coconut Creek,
Cooper City,
Coral Springs,
Dania Beach,
Davie,
Deerfield Beach,
Fort Lauderdale,
(Ft. Lauderdale),
Hallandale Beach,
Hillsboro Beach,
Hollywood,
Lauderhill,
Lauderdale Lakes,
Lauderdale-By-The-Sea, Lazy Lake,
Lighthouse Point,
Margate,
Miramar,
North Lauderdale,
Oakland Park,
Parkland,
Pembroke Park,
Pembroke Pines,
Plantation,
Pompano Beach,
Sea Ranch Lakes,
Southwest Ranches,
Sunrise,
Tamarac,
Weston,
Wilton Manors.
For
information on these cities, click on the appropriate link.
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