The Connecticut Elder Law Blog

What You CAN'T Accomplish with a Revocable Living Trust

Revocable living trusts are often a very useful tool when it comes to estate planning, and most of my clients opt to set one up. This is particularly true if minimizing probate involvement upon your death is a major planning goal. However, I find that many clients grossly overestimate what can be accomplished with their trust documents.

Here are the most common myths I've run across in regards to living trusts:

"I will avoid probate if I have a living trust."

This is the most popular myth about living trusts. If you take the necessary steps and fully fund your living trust then you will certainly minimize the necessary probate court procedure. However, at least in Connecticut, even if you do everything perfectly and keep all of your assets out of probate, there are still at least a few documents that you will need to file with the local probate court, the most prominent of which is the estate tax return.

 

"A living trust will protect my assets if I end up in a nursing home."

This would be fantastic if it were true, but it's not. Assets in a typical living trust are not protected from the nursing home or any other creditor. There are other types of trusts that could be used, but they are typically income-only, irrevocable, someone other than yourself needs to be the beneficiary, and you still have the 5-year look-back to worry about. That is a level of trust planning that goes well beyond revocable living trusts.

 

"A living trust will allow me to avoid estate tax."

A living trust definitely can include special estate tax planning provisions. But you can accomplish the same type of tax planning in a last will & testament. Please note that the current estate tax exemption in Connecticut is $2 million. 

 

"A living trust will allow me to avoid probate court fees."

This makes absolute sense. If you use your living trust and take other measures to keep all of your assets out of probate when you die, then there would be no probate court fees, right? Unfortunately, that's not correct. Even if absolutely no assets go through probate, the court will still charge a fee based on the overall size of your estate, and that calculation includes  all of your non-probate assets. So it's referred to as a "court fee", but it operates more like a tax. This is how the Connecticut probate court system is funded. 

 

"I don't need a last will & testament if I have a living trust."

It's true that you don't technically need a will if you have a living trust. "Need" is a strong word. But it's highly advisable to have a will to accompany your living trust. The purpose of the will is to take any assets that end up accidentally going through probate (despite your best planning efforts) and transfer them over into your living trust. Unfortunately, those assets will have to go through a probate process before going into your trust, which was what the living trust was designed to avoid in the first place. So make sure that you do the appropriate planning to keep everything in the "non-probate" category at all times. 

DISCLAIMER: This blog does not offer legal advice, nor does it create an attorney-client relationship.  If you need legal advice, consult with a lawyer instead of a blog.

 

 

 

 

 

Shocker: You May NOT Need a Living Trust

Today's take-home lesson:  In Connecticut, the only genuine benefit of a revocable living trust is probate avoidance.

To be fair, I will also mention that there is a privacy benefit as well; living trusts generally do not become public record, in contrast to wills.  However, in my own 16+ years of law practice there have been very few clients who have cared deeply about about the privacy issue.

In any case, it's important to keep in mind that nearly all of the living trust benefits your neighbor has told you about is not true.  More specifically, they do not lower your probate court fees, and any estate tax liabilty you have can be addressed just as easily in wills or by other means.

That's correct.  The probate court fee assessed on your estate is based on the size of your estate, which includes probate AND non-probate assets.  Contrary to common sense, it is not based on how many of your assets go through the probate process.

Additionally, wonderful things like credit shelter trusts, general support trusts for young or problematic beneficiaries (or young AND problematic beneficiaries!), special needs trusts, spendthrift trusts, etc. can all be incorporated into your wills; you don't necessarily need revocable living trusts to include these in your overall estate plan.

Please note that the concept of avoiding probate is nothing to scoff at!  The probate process can be (but isn't always) a lengthy process and an administrative headache.  Particularly if you have real estate located somewhere outside of Connecticut.

However, you should keep in mind that you probably have some assets that are already designed to avoid probate upon your death, regardless of whether you have a living trust or not, such as beneficiary-driven assets (e.g. life insurance, annuities and qualified retirement accounts) and joint assets.

So...before you sign up for a revocable living trust, which is typically double the cost of a simple will package, make sure your attorney walks you through your "probate exposure".

The all-important disclaimer:  This blog does not offer legal advice, nor does it create an attorney-client relationship.  If you need legal advice, consult with a lawyer instead of a blog.