Recently, CNBC posted an article on their Website about the benefits of trusts, entitled “Heir Tight: The Do’s and Don’ts of Creating Rock-Solid Trusts.” The article provides some very good information about why most people should have a trust; however, there are some misconceptions when it comes to Revocable Living Trusts and what they protect against. I will clarify these in this article, because they are common misconceptions made by many people, including journalists and even some lawyers.
First of all, using the term “Rock-Solid Trusts” in the title of the article makes the casual reader think that a Revocable Living Trusts (RLT) (which is what the article is about) will protect the assets of the person who establishes the trust, but an RLT simply does not offer any asset protection whatsoever to the person creating the trust. Although RLTs are a very common estate planning tool for Americans under age 65 and healthy, and for people of any age who are healthy, assets inside an RLT are NOT protected from lawsuits, creditors, divorce, or the devastating costs of long-term care. RLTs are primarily effective in avoiding probate and offering protection from incapacity.
According to a quote in the article, Revocable Living Trusts (RLTs) “help protect your heirs against future catastrophes—[such as] bankruptcies, money-hungry predators disguised as friends, family looking for loans or business bailouts and other financial challenges—and can also provide for certain special needs of your children or grandchildren.” Although an RLT can be drafted for this purpose, most are not. Most attorneys draft RLTs that terminate upon the death of the Trust creator (called Settlor or Grantor) and provide no asset protection for beneficiaries whatsoever. Here at the Farr Law Firm, we offer this “Beneficiary Asset Protection” option on all of our RLTs, but it is by no means automatic and is by no means an inherent feature of an RLT.
The article also equates a revocable trust to a living trust, whereas these are NOT the same thing. According to the article, “Revocable Trusts, or Living Trusts, are often a better option (than a Will). You allocate, access and manage assets, and amend terms while you’re alive. When you die, the trust can convert to an irrevocable trust with unchangeable terms. Other pluses: They’re easy to set up, are flexible and protect privacy.” To clarify this statement, a living trust is simply a trust created while the Settlor is living. It is completely inaccurate to use “Revocable Trust” and “Living Trust” interchangeably, because many Living Trusts are Irrevocable Living Trusts, not Revocable Living Trusts.
Only an Irrevocable Living Trust that is properly structured can protect your assets while you’re alive – such as the Living Trust Plus™ (LTP), which I created, and which is used by the Farr Law Firm and dozens of the top attorneys around the country.
Understanding Living Trust Plus™ (LTP)
The Living Trust Plus™ (LTP) functions much like a Revocable Living Trust and maintains much of the flexibility of a Revocable Living Trust, but protects one’s assets from the expenses and complexities of probate PLUS lawsuits PLUS nursing home expenses while the creator of the trust is alive. The LTP protects the trust creator’s assets from lawsuits, medical expenses, and — most importantly for the 99.8% of Americans who are NOT among the ultra-wealthy — from the devastating costs of nursing home care.
For most Americans over age 65, an LTP is the preferable form of estate planning because it includes asset protection for the person planning, and not just for that person’s children or other descendants. For purposes of Medicaid eligibility, this type of trust is the only type of self-settled asset protection trust that allows a settlor to retain an interest in the trust while also protecting the assets from being counted by state Medicaid agencies.
If you’re a client or potential client who would like more information about Living Trust PlusTM, please view our informational video. In addition, please register for one of our upcoming Living Trust PlusTM informational seminars in Fairfax or Fredericksburg. Our seminars teach attendees how to protect their assets from the expenses of probate and long-term care, how to obtain valuable Medicaid and Veterans benefits to pay for long-term care, how to protect assets from lawsuits, divorce, and long-term care creditors, and more. Reserve your spot todayor call our office at 703-691-1888 in Fairfax or 540-479-1435 in Fredericksburg to make an appointment for an introductory consultation.
About Evan H Farr, CELA, CAP
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