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The Truth about Trusts

When Mr. and Mrs. Smith purchased a Revocable Living Trust (RLT) a few years ago, they felt they had taken care of a multitude of problems – probate, lawsuits, taxes, Medicaid planning, etc.! Attending various “trust seminars” conducted by insurance sales people, they had gathered bits and pieces of information Some of the information was in error. RLTs do indeed bypass probate, but as to these other matters, RLTs do not in any case protect assets from lawsuits or provide Medicaid planning! One should always consult with an attorney or comprehensive planning professional to make certain the security desired is indeed being provided.

The Smiths were shocked to learn that because of the size of their estate (around $450,000), the RLT was not needed to “save them from estate taxes”! There would be no estate tax issues for this couple unless their estate would total in excess of $1,500,000. Secondly, the Smiths were greatly angered when they discovered that a Revocable Living Trust provides absolutely no protection from lawsuits against them, nor does it provide protection of assets in the event of needing nursing care (i.e. requesting Medicaid assistance).

It is true that a Revocable Living Trust can help a person or family avoid probate. If avoiding probate is the goal – a RLT works very well! The costs of probate are really not overwhelming in Texas. Many other states actually have a “percentage of assets” charge for probate…not in Texas at this time. In the Fort Worth Star Telegram, Kathy Chapman, Assistant Dean at Texas Weslyan School of Law and an expert in legal issues for mature adults stated, “The costs of administering an estate (with only a will) can be very reasonable and possibly less than creating and administering a living trust.” The probate laws in Texas are referred to as the “Simplified Probate Code”. Probating a will in Texas is relatively straightforward and usually not expensive. However, if one does not want to walk through the probate process, and, wishes an attorney to assist with this process, the minimum charge is around $1,000 to $1,500.

If probate, and probate alone, is the only issue for someone, there are other techniques which are available to “bypass probate”. Contractual documents which have named beneficiaries will also provide “no probate” ease in passing assets to heirs. Contracts such as life insurance policies and annuity contracts are good examples. Please be aware that there are many, many types of trusts that are utilized for specific purposes. The only type of trust addressed in this short article has been the Revocable Living Trust…the trust most commonly used in family estate planning.

A Revocable Living Trust can be a very helpful and valuable tool if used for the right reasons. Some or all of those reasons might be the following:

1. The desire to have Privacy – Probate is a public event and anyone can discover details about a person’s assets, etc.
2. The ease of passing assets without Probate – successor trustee simply takes control of the estate and begins distributions very quickly.
3. Avoidance of probate costs (if any) – attorney fees, etc.
4. Estate tax planning if estate is over $1,000,000 – estate taxes can be avoided or greatly reduced.
5. Avoiding probate in an additional state – if one owns property outside of the home state.
6. Helps avoid contests – “wills” could be contested in open court.
7. Planning for a family member who might need special care or assistance (either physically or financially – or both).

And, there are other reasons one might desire a RLT which are beyond the scope of this article.
So, what to do!?! Talk with a comprehensive planner – one that will help you determine whether or not a RLT would truly benefit you. Every person should have only the items that make you complete. You will enjoy meeting with a professional planner that can design a plan for you to make your life Simple, Secure, and Satisfied.