What a Living Trust Doesn’t Do
A living trust is a document that allows you to manage your assets, and put them in a trust, while you are still alive. It can also designate someone to manage your property after your death. Living trusts are often used to avoid probate, and to prevent financial records from entering public record. They are often recommended for people who have substantial assets, who have a blended families, or who have other complex situations. They can also be used for unmarried individuals, because it can allow your wishes to be fulfilled by using beneficiaries and rights of survivorship. A living trust is undoubtedly an important document to consider writing up. However, there are some misconceptions about living trusts, and what they do. Here are 6 things that living trusts do not do.
Living Trusts Do Not Control Medical Decisions
While a living trust may sound similar to a living will, they are completely different documents that control different things. A living trust allows you to control your assets and property. A living will allows you to control some of your medical decisions. Usually, it defines your beliefs and wishes about life support, in the case of a terminal illness or serious injury. In order to fully control decisions about your health care, you should write a document known as a health care power of attorney. It may also be called an advance directive or health care proxy. This allows you to give legal authority to one person to make health care decisions for you, if you are incapacitated.
Living Trusts Do Not Protect Your Assets from Creditors
Contrary to popular belief, living trusts do not help protect your assets from creditors, at least while you are alive. Since it is a revocable living trust and can be canceled at any time, your creditors still have access to them. After your death, however, your assets are protected from creditors. While a revocable living trust cannot protect your assets from creditors, an irrevocable living trust can help protect your assets from creditors. However, you cannot revoke or change an irrevocable living trust, which makes it a less appealing option for many individuals. If you are extremely worried about asset protection from creditors, you should speak to your estate planning attorney as soon as you can.
Living Trusts Do Not Qualify You for Medicaid
By themselves, living trusts do not qualify you for Medicaid. They also do not help you reduce your income level. Medicaid is a federally funded medical program, designed to provide health care for the poor. In order to receive Medicaid benefits, you must have a limited amount of assets and be below a certain income threshold. However, Medicaid appeals to some individuals who are above the income level, because it pays for an unlimited amount of nursing home care. Putting your assets in a revocable living trust does not help you qualify for these benefits automatically, because you do still have control of the assets. They are still counted in your application for Medicaid. If you are interested in qualifying for Medicaid, you should aim to speak with an attorney that specializes in elder law.
Living Trusts Have No Effect on Income Taxes
Having a living trust will have no overall effect on the amount of income tax you pay each year. Regardless of if you have a living trust in place, you must report all income you earn to the IRS each year. You are also required to pay taxes on all of that income, and not a portion of it. This is because, as mentioned above, you still have control over these assets. You can revoke or change the living trust at any time, and the living trust is not permanent. If you are considered about income tax, you may be able to save some income tax by filing an irrevocable trust. You would need to discuss this possibility with an estate planning attorney.
Living Trusts Do Not Help You Save on Estate Taxes
Having a living trust won’t help you save on federal or state estate taxes either. Any assets that are currently in a revocable living trust are included in your estate for tax purposes. These assets are also generally subject to state death taxes, although you can work around this if needed. You can draft a number of tax savings provisions into your living trust to help your trustee avoid some of the death taxes. These provisions are not exclusive to living trusts, however. You can draft the same provisions in a will as well.
Living Trusts Do Not Guarantee Your Assets Will Be Distributed Faster
While a living trust may make your assets be distributed faster, it does not guarantee that they will be distributed quicker. Regardless of how you set your assets to be distributed, will or living trust, the process takes around the same amount of time. If your assets are generally uncomplicated, there should not be much difference in the distribution time of your assets. If your assets are complicated, a living trust will likely not save you much time. A lawyer and accountant will still be heavily involved, and will have to fill several forms. This process can take months, and will occur regardless of if you have a living trust or a will.
Creating a living trust is an incredibly personal decision. There are several potential variables, and outcomes that you must consider. You also should take into mind that a living trust does not guarantee you Medicaid benefits, tax exemptions, or protection from creditors. If you are still confused about living trusts and how they work, consider talking to an estate professional. Talking to a professional is the best way to figure out what is the best solution for your situation, and how to proceed in establishing your trust. To look into establishing a complex trust, or to learn about your options, consider contacting an estate attorney as soon as possible.