Revocable (“Living”) Trusts

What’s a Revocable (“Living”) Trust? 

A revocable trust, often called a living trust – one created during your life, or even termed a “loving trust” by some (why, I don’t know), is a contract. This contract, signed by you as the grantor (person funding the trust – putting in assets) and you as the trustee (person in charge of the trust). 

What does a Revocable Trust do?

It outlines how assets placed in it (by deed or a change in ownership), or directed to it (by a pour-over will or beneficiary designation) are managed for the benefit of the grantor, or some other beneficiary (person that benefits from the trust). A revocable trust is ultimately, however, a will-substitute intended to avoid probate (process of proving the will is valid in court). 

Revocable trusts also help avoid the need for a guardianship proceeding. How? If the grantor becomes incapacitated (with us physically, but not mentally), the trustee (or alternate trustee) has authority to manage trust assets. That way the trust can continue to benefit the grantor during his or her lifetime. Otherwise, asset management is controlled by a power of attorney form, at best. At worst, one need apply to the court to be appointed guardian (a person in charge of the person – the actual body and its care, the property – assets, or both). 

What doesn’t a Revocable Trust do

This type of trust can’t protect from creditors. Why? It’s a mere extension of the grantor -the person that funds it. There’s no separation. No barrier between the grantor and the assets. 

It can’t control assets not titled to it. If one wants the trust to actually benefit him- or herself, asset ownership must be changed from the individual(s) to the trustees. 

Anyone looking for Medicaid (federally funded long-term care insurance program administered by states) planning is looking in the wrong direction if trying to use a revocable trust. To qualify for Medicaid’s long-term care program  that covers nursing home stays (as opposed to in-home care) one must apply. That application requires disclosure of assets. Assets held in a revocable trust are treated as accessible to grantor.