3 Common Problems To Avoid With Your Revocable Trust
A revocable trust is a great way to protect your assets and secure your family's future. However, there are many mistakes that people often make that can put your funds at risk. At Elder Needs Law, we can help you create a revocable trust and ensure that it gets made correctly.
Continue reading to learn how to avoid common problems with your revocable living trust or revocable trust:
So there are three common problems I see. And here's what you can do to avoid them. The first one is, of course, failing to fund your revocable trust adequately. So you come to a lawyer, like me, if you're in the state of Florida. And you ask for a revocable trust package to ensure that your assets avoid probate. That's great. We will provide you with trust. And if you have real estate, we can help you deed that property into the trust. But what happens is we don't actually go to the bank, or your financial institutions, or Your Life Insurance Company and retitle those assets or change the Pay on Death beneficiary of those assets. That's something you have to do yourself. We provide you with very detailed instructions on how to do this for each asset class.
So, for example, what you do with your revocable trust is you bring what's called the certificate of trust into your bank, and you say, I want to retitle the name of my bank account into the name of my trust. So instead of it being in your personal name, it's in the name of your trust. Now, the trust owns that bank account. And you are presumably the trustee. So you have full control over what happens. There's no material difference in your life other than the name on the upper left-hand corner of your checks might look a little bit different. But otherwise, you do whatever you want while you're the trustee.
And then, after you pass away because the bank account has already been titled in the name of your trust, the trust will indicate what happens at that point in time. With all financial accounts, you have the ability to either retitle the name into the name of your trustee, and again, you bring the trust certificate, which is typically a two or three-page document, to your bank officer, and they'll walk you through that process. Or you can change the Pay on Death beneficiary, right? Every financial account allows you to name someone who will or a group of people who will inherit whatever was in that account. When you pass away, you have the choice of either changing the name on the account or keeping the account's name as is and changing the Pay on Death beneficiary to instead of being, let's say the names of your children, put it in the name of the trust.
You want to put it in the name of the trust because if something happens to, for example, your children, then you could invite probate anyway. Or you could unintentionally disinherit a grandchild, right if their parent passes away, and now all the assets go to the surviving child. The deceased child's children and your grandchildren might not be entitled to anything. We want to avoid those sorts of things. There are certain assets where you cannot retitle the name on the account, like a 401 K, IRA, or life insurance, but you can always name the trust as the Pay on Death beneficiary.
The second problem that I want people to avoid is to assume when they are setting up a revocable living trust that it will provide them with any measure of asset protection. Irrevocable trusts, which is a subject for another video that I'll link to, a revocable trust can provide you with asset protection. Still, revocable trust, the standard probate avoidance tool, is not going to help you avoid creditors. Okay? That's because, typically, you are the trustee. You are the creator of the trust. You're also the beneficiary of the trust if you're the trustee, and you can control what happens with the assets inside that trust. There's no reason why a creditor can't come to you.
Along with the same token, we do a lot of Medicaid planning. A revocable trust does nothing for you in terms of protecting your assets from being counted against you for Medicaid eligibility purposes. We have other devices that do that. So if you're interested in protecting your assets in a long-term care context, right to get Medicaid to pay for home care, elf care of nursing home care, you can't rely on your revocable living trust, you got to call us set up a consultation, we'll walk you through how to protect your assets the proper way it's not going to be utilizing a revocable trust or a revocable living trust.
Finally, a lot of people like the idea of a revocable living trust because it cannot provide you with the person who is benefiting from the trust while you're alive. With asset protection, it can provide some asset protection for your children or whoever you named as a beneficiary to receive benefits from the trust only after you pass away for those individuals or groups of people. You can set the trust up for asset protection purposes. Still, the trust has to be very carefully written because if you instruct the trustee to make an outright distribution, without any reservations without what's called a spendthrift clause, then you could inadvertently be subjecting your heirs to the whims of their creditors, right or if they get divorced, then that their ex can take, you know, can take half of what you're going to give them.
Or if they have just a problem managing money, maybe they blow that money. So if you're interested in protecting your heirs typically or children from themselves or risk to them, you want to make sure you're very specifically detailing those concerns with your estate planning, whether it's me or anybody else in Florida to make sure that they're drafting your revocable living trust properly.
So these are some of the more common problems I see people making or assumptions about their revocable living trust. Hopefully, now you can avoid them. At Elder Needs Law, we would be happy to walk you through that process if you'd like to give us a call today to schedule a consultation. We'd be glad to work with you. We help people all over the state of Florida. Thank you for reading.
Find more helpful resources:
- 7 Things to Know Before Creating a Qualified Income Trust
- Why Qualified Income Trust or Miller Trust Funding is Important
- 5 Tips to Help Avoid Probate
- Florida Asset Protection: What Is an Estate Plan?
