The best lawyer-like answer I can give you is, “it depends.” Or I could say, “maybe, maybe not.” The point is, don’t believe everything you hear on radio or TV. Don’t believe everything you read on the Internet – except what I have written, of course.
First of all, lets get something out of the way right now. The Revocable Living Trust (RLT) will have no bearing on your taxes. It will have no bearing on obtaining Medicaid, though it may cause you to be ineligible for Medicaid. It will have a bearing on Probate at your death.
The IRS treats property held in a RLT as the property of the Trustor – the person who makes the trust, sometimes call the Grantor. So there is no adverse or favorable tax consequence for a RLT.
Medicaid also treats property in a RLT as belonging to the Trustor. The consequence is that the Trustor will not be able to qualify for Medicaid if the value of the trust property (and also the other property of the Medicaid applicant including the property in the RLT) exceeds $2,000.00.
A RLT is important if you own real property (land) outside the state of Colorado. If you keep this real property located in another state only in your name, you will have to probate in Colorado (assuming your residence is in Colorado) and in the other state. There is no other way to transfer title since title to real property can only be transferred by deed (sometime by court order, but that doesn’t apply here). The only person who has legal authority sign the deed is the owner. So, when you die, no one has authority to sign the deed (unless there is an appropriate co-owner). In the probate process, someone will be appointed by the probate court as the Personal Representative. Once that happens, this person has the authority to sign a Personal Representative’s Deed. The only problem is that Colorado courts only have authority over Colorado property. So you have to open a probate in the other state and have a proper court in that state also appoint a Personal Representative to sign an Personal Representative’s Deed.
Another good reason for a RLT is the situation where you do not want to give an asset away outright to someone, but would rather have that person wait to receive title or only have the use of the asset for her lifetime, and then pass title to another person. A Trust works well in this circumstance.
There are a few other reasons, but remember that you can get basic estate documents for a fixed price. You might also be able to get a RLT at a fixed price, but this trust will likely cost you a similar amount as the estate documents, so you are paying double. Note, even if you have a RLT, you still need a Will, Living Will and the two Powers of Attorney. It is best to still have the Will since in probate there is a four month statute of limitations, whereas, without the Will the limitation period for latent debts could be 3 to 6 years.
Remember also, lawyers and companies who do this sort of thing, make a lot of money off of the RTL. The moral of the story, be cautious.
© 2016 DOUGLAS S. HOLDEN, P.C. All Rights Reserved