Aug 17, 2023 Is a Revocable Living Trust Right for You?

There are many types of trusts that fit the needs of people in different situations. One of the most commonly used forms of trust is the “Revocable Living Trust,” sometimes called the Intervivos Trust. The benefits of a revocable living trust include the maker of the trust (creator, settlor, or grantor) retaining control over the assets they place into the trust during their life and preventing those assets from the expensive and time-consuming process of having to be probated after their death.

This blog post explains the ways in which revocable living trusts function, the protections they provide, and their limits. If you want to learn whether a revocable living trust fits your needs or if another trust or other estate planning product will better fit your circumstances, contact the experienced trust and estates lawyers at Ely J. Rosenzveig & Associates.

What Is a Revocable Living Trust?

A revocable living trust is a fiduciary relationship in which one party (grantor) transfers valuable assets to be held by another party (trustee) in trust for the benefit of named beneficiaries. With this type of trust, the grantor can name themselves as trustee and keep complete control over the management and disposition of the trust assets.

The trust remains revocable – i.e., where its terms can be changed freely at the grantor’s discretion -throughout the grantor’s life. Only upon the grantor’s death does the possibility of revocation end, thus turning the trust into an irrevocable trust. The trust terms direct the grantor’s successor trustee to manage and distribute the assets according to the grantor’s instructions.

As long as the grantor lives, the terms of the document creating the trust can empower the grantor to change the terms of the trust, add or withdraw assets, change the names of beneficiaries, and amend the time or conditions under which beneficiaries may receive any share of the trust assets.

Why Use a Revocable Living Trust?

Avoid Probate

The primary benefit provided by a revocable living trust is that it prevents any assets in the trust from going into probate in the Surrogates Court. Avoiding probate can be important for anyone who wishes to keep their affairs private since the probate process requires matters to be open to public view.

Privacy

Property owners often appreciate the ability to keep the amount and location of their assets from the prying eyes of interested outsiders. Many people also wish to keep their decisions about the distribution of their assets private after their death.

Potential Savings of Time and Costs

The cost of establishing a revocable living trust depends on the extent and complexity of the grantor’s assets and the frequency with which the grantor changes terms. While there is an expense involved in creating a revocable living trust, the cost is usually far less than would be incurred by passing one’s assets by a last will and testament through the probate process in the Surrogate’s Court.

Probate court proceedings are notoriously slow and often require the estate assets to be depleted by ongoing legal fees, experts’ property valuations, property management, and the prospect of family disputes causing stress among the decedent’s already aggrieved survivors.

Drawbacks of a Revocable Living Trust

While there are many benefits to using a revocable living trust for some people, they may not be the legal instrument that fits your needs. Like all estate planning options, revocable living trusts have certain limitations.

Tax Implications

The very feature that makes revocable living trusts so attractive to some people (the relatively unlimited control over the trust assets throughout their life) also means that the assets and profits they generate are taxable to the grantor. Since the grantor retains complete control over the trust property, tax authorities attribute all trust transactions to the grantor.

If the trust were irrevocable and managed by a trustee who strictly followed the terms of the trust document and acted independently of the grantor, the trust’s transactions and income would not be attributable (or taxable) to the original grantor. Determining the proper route forward regarding this issue require careful analysis and counsel.

Not Medicaid Qualified

Another limitation of a revocable living trust is the fact that Medicaid will view the trust assets as available resources if the grantor applies for Medicaid benefits to cover long-term residential care or community-based services.

New York Medicaid eligibility requirements limit the amount of income and available financial resources an applicant may have. Medicaid is a needs-based program designed for low-income disabled people and elders with too few available resources to pay for their nursing care.

Because the grantor of a revocable living trust can continue to exercise control over the trust assets, the government will require the Medicaid applicant to spend down any amount in the trust that exceeds the resource eligibility cap before they receive benefits. However, several other types of trusts will protect an individual’s financial assets and property from being counted by Medicaid, such as a Special Needs Trust (SNT) or a Medicaid Asset Protection Trust (MAPT).

When these trusts and other legal strategies are established far enough in advance to avoid Medicaid’s five-year look-back period, assets that are positioned in a thoughtful estate plan will not be considered by Medicaid as an available resource to be spent down, and can be preserved for the person’s next generation of family members or other parties to who they wish to distribute the trust assets.

The difference between irrevocable trusts, the SNT, and the MAPT on the one hand, and a revocable living trust on the other, is that in the former case, the grantor yields significant control over their assets.

Which Estate Plan Is Right for You and Your Family?

Determining which estate plan is most suitable for you and your intended beneficiaries is the focus of the experienced estate planning lawyers at Ely J. Rosenzveig & Associates. By conducting a thorough review of your personal and financial circumstances in consultation with you, Ely J. Rosenzveig & Associates will be able to advise you about the estate planning instruments and strategies that best fit your goals, your desired degree of control, and any special circumstances affecting your family members, heirs, and beneficiaries.

It’s never too early to consider planning to secure your financial position, your family’s future, and protect your hard-earned financial assets and property from unnecessary taxes and government imposition.

Contact Ely J. Rosenzveig & Associates today to find out what estate planning strategy is right for you and your family.

Contact Ely J. Rosenzveig & Associates
Call 1.914.816.2900 or email us at: [email protected]