There are over 100 seminars each year in Connecticut on the topic of revocable or “living” trusts. This has resulted in a lot of confusion over exactly what a revocable trust can do and what a revocable trust can not do. It is important that any person considering creating a revocable trust know the truth and misconceptions about them.

Myth: A revocable trust can shelter my assets if I need Medicaid benefits.

Many people think that if they place their assets in a trust, they can protect those assets and create eligibility for Medicaid benefits because the assets are owned by the trust and not the individual. This is not true in the case of revocable trusts because the person creating the trust has the ability to revoke or dissolve the trust and have the property returned to them at any time. Assets owned by a trust that you can revoke or dissolve, or have other certain powers over, will not be protected from long term care expenses.

Truth: A revocable trust can cost less to administer than most other alternatives.

A revocable trust is commonly used to take certain administrative procedures that ordinarily are carried out in the court system and transfer responsibility for those procedures to a Trustee who is either a family member or a professional. Some of these procedures are distribution of property upon death, management of property upon disability, and management of property for beneficiaries under age 18. When these steps are supervised by the courts, there are accompanying costs. When these steps can be handled by a Trustee, there can be significant savings in many cases.

Myth: Only wealthy families can benefit by using a revocable trust.

An estate of $1 million or more is not required to benefit from the streamlined administration of a revocable trust. It is not uncommon for attorney fees alone to be in range of 3% of the estate in probate administration cases. With this in mind, people with an estate of $200,000 or more should compare the potential administration costs of using a revocable trust and not using a revocable trust before making a decision.

Truth: If I have real estate in two different states, I should consider a revocable trust.

Real estate in two different states opens a person up to administration in two different states which increases the administration costs. In order to avoid two administrations while at the same time retaining control over your real estate, a revocable trust is a common recommendation.

Myth: A revocable trust can avoid all administration procedures and costs.

A revocable trust moves the administration process out from the supervision of the probate court, it does not eliminate the administration process. The Trustee has the obligation to inventory or gather the assets, file and pay any required inheritance or estate taxes, account for financial transactions during the administration period, and then distribute the assets according to the terms of the trust instrument.

Truth: I can change the terms of the trust if I choose to.

A revocable trust is not etched in stone. It is a flexible document that the creator can change at any time with one exception, the creator cannot increase the duties of the acting Trustee without the Trustee’s consent. In the majority of cases, the creator of the trust is also the Trustee so this is not a significant concern.

Myth: Everyone should have a revocable trust.

A revocable trust is not a universal estate planning solution. It does provide certain advantages, but it can have disadvantages if used in the wrong situation. You should be confident you understand the advantages and disadvantages of using a revocable trust in your personal situation before making a decision.

Truth: A revocable trust offers more privacy than a Will.

Probate administration is a very open process because it is a judicial process. If you are uncomfortable with the public nature of probate administration, then you can secure more privacy by using a revocable trust rather than a Will.

If you think a Connecticut Living Trust may be right for you, visit CTLivingTrust.com

Transferring ownership of the family house to children is a popular strategy throughout Connecticut for some families looking to qualify for Medicaid nursing home benefits. In some cases, when part of a well thought-out plan designed specifically for the family involved, this strategy has worked. In other cases, when this decision is hastily made without proper advice, the strategy can be disastrous.

Liability. Let’s assume you’ve made your children owner of your home. Part of what you have done is put your residence within the reach of your children’s creditors. If they are ever in an accident, get into financial trouble, or get divorced, your house is now in jeopardy.

Taxes. Under the current estate and income tax rules, when your children inherit your residence they will receive a step-up in basis that serves to eliminate the capital gain built into your house. If you gift your house to your children, they will not get the full benefit of this step-up in basis and will almost certainly be subject to capital gains tax on a portion of the sale when they sell the property.

Should you give your house to your children? I don’t know enough about you. Should you carefully consider the ramifications of such a significant step? Absolutely.