I have received a number of calls recently from people that have been contacted by organizations pushing Revocable Living Trusts and trying to scare them with misinformation and half-truths. If you have any questions about them, please feel free to give us a call or email.
A number of the people have been told that by putting their assets in a Revocable Living Trust that they will have “asset protection”. If you are the “Settlor” (the one that puts the money or property in the trust), and the “Beneficiary” (the one for whose benefit the trust assets can be used), and the “Trustee” (the one that controls the money in the trust), it does not provide asset protection just by putting it in the trust. If you could take it out of the trust, then a creditor could reach it too, if it was a non-exempt asset. If both husband and wife create and fund a Revocable Living Trust, there may be asset protection for some of the assets in the trust when the first spouse dies. But if both husband and wife are alive, just putting it in a Revocable Living Trust does not give it any special asset protection.
A number of people were also told that they need to put their home in a Revocable Living Trust or creditors could take it. That is just false. Under Texas law, we have homestead rights. Your homestead is a protected asset that is free from attachment by creditors, except in very limited circumstances. Obviously, if you don’t pay your mortgage, they can take your home, but that would happen whether it was in a trust or not. The law also allows for some liens to attach to your homestead, such as a materialman’s lien (if properly filed), tax liens, or liens for non-payment of your maintenance or homeowners assessments. Again, putting it in a trust would not give any special protection. However, if you have credit card debt, or other general unsecured debt, such as medical bills, they cannot force a sale of your homestead. It is already a protected asset, just like your retirement accounts, life insurance, Social Security and certain personal property.
Many have also been told that if they don’t put everything in a Revocable Living Trust that they will be paying 50% of their estate in taxes. Texas does not have a separate estate tax. If it is a taxable estate, it will depend on Federal law. Some large estates do require tax planning. Often times when tax planning is done, Revocable Living Trusts are used. However, the language used in preparing the documents and how it is structured is what may potentially save on taxes. There is no tax savings in a tax-planned trust that can’t also be done in a tax-planned Will. The fact that a trust structure is used, rather than setting up the transfer through a Will, does not give tax benefit.
Revocable Living Trusts are more expensive to set up, fund, and maintain than preparing basic Wills, and still require that you prepare Pour-over Wills for the transfer of any property that wasn’t properly transferred into the trust during your lifetime. However, given the right circumstances, they can be the best structure, and may even save your estate money in the long run.
The decision whether or not to prepare Revocable Living Trusts or just Wills should be made based on your personal situation with the advice of your attorney, and not made based on fear because of misinformation and half-truths. It should not be a “one size fits all” estate planning tool.
If someone has contacted you to discuss your estate planning needs, be very cautious. You do not know them, or if they are a reliable source of information. We recommend that you initiate the contact with an attorney of your own choosing if you have issues concerning your estate plan.
If you would like to learn more about Living Trusts, please click here.