I know… I know…your neighbor’s sister’s friend is a lawyer and she SWEARS that the best estate plan includes a Living Trust. In my experience, Living Trusts rarely end up working out as promised. Here are some common myths about Living Trusts:
Myth #1: You avoid Probate with a Living Trust and probate is EXPENSIVE and COSTLY!
In order to avoid Probate using a Living Trust, you must ensure that all assets are titled in the name of the Living Trust. If the decedent forgets to properly title just one asset, you’ll most likely have to go to Probate. However, going to probate isn’t all the bad! There are may states out there where probate is extremely time consuming and costly, but Idaho isn’t one of those states, in my opinion. You may hear stories about probates taking years to complete, but chances are- you don’t know all of the facts. It could be a dispute among the heirs, or the IRS that is causing the hold-up. A straight-forward probate doesn’t take long at all. Many take less than 6 months. Another thing most proponents of living trusts won’t tell you is that administration of the trust could take just as long as a probate.
Myth #2: Assets in a Living Trust Don’t Count for Medicaid Eligibility.
In reality, any assets that can be used for your support will be counted towards your Medicaid eligibility. A living trust is “revocable” which means that you have the right to withdraw assets at any time, for any purpose, including your own support. For this reason, assets in a Living Trust will be counted towards your Medicaid eligibility. Additionally, the assets in a revocable living trust are also subject to the Medicaid recoupment lien once the surviving spouse dies. Moreover, if your home is titled in the name of the trustee of a living trust, it loses its exempt status for Medicaid purposes. Only assets in a certain irrevocable trusts may be excluded in determining Medicaid eligibility, 60 months after the assets are transferred to the trust.
Myth #3: Creditors can’t reach the assets in your Living Trust:
During your lifetime, the assets in your living trust are subject to creditor’s claims. Upon your death, the assets in your living trust are subject to the claims of the creditors of your estate.
Myth #4: By having a Living Trust, I can avoid a Will Contest:
Although a “Trust” and a “Will” are completely different legal instruments, it is true that a Living Trust cannot be the subject of a “Will Contest.” However, the typical grounds for a will contest: Undue Influence, Fraud, and Lack of Capacity, apply to Living Trusts as well as Wills. So, beneficiaries or people who are left out of a living trusts, can attack a Living Trust.
Myth #5: If I have a Living Trust, it will Save my Estate from Taxation:
A revocable living trust will save no more estate taxes than a properly drafted will with testamentary trust tax-planning provisions.
Myth #6: Attorneys charge from 3% to 10% More to Probate Your Estate:
If your family members hire an attorney to assist with probate, your family will agree upon the attorney’s fee. It should typically be based on an hourly charge, but in some cases, I will agree to a flat fee regardless of the hours it takes me to complete. Additionally, I have been brought in on several cases to help a Trustee administer a Living Trust, where the Trustee is not a corporate fiduciary, and has no experience in Trust administration.
Myth #7: Everyone Should Have A Living Trust:
In reality, the cost of creating and administering living trusts outweighs the benefits for many individuals. For some individuals who lack the capacity to manage their assets, or are too ill to manage their assets, a living trust is a useful method of asset management. Additionally, for those who own real property outside of Idaho, a living trust can be useful for avoiding the other’s state’s probate process. But, in my experience, the majority of my clients are equally as prepared with a complete estate planning package including: a Will, Durable General Power of Attorney, Durable Power of Attorney for Health Care, and a Living Will. The price for this simple estate planning package is approximately one-third of the cost of a Living Trust.
To learn more about Boise Estate Planning Attorney Natasha Hazlett visit www.angstman.com. To schedule an appointment today, call 208-384-8588