Revocable Trusts, sometimes called Revocable Living Trusts, are written agreements between you and your Trustee, the person that you choose to manage the assets in the Trust. When establishing a Revocable Trust, you may designate yourself to be the Trustee, and you may reserve the right to withdraw income and principal whenever you wish. Though Revocable Trusts do not protect your assets in the event that you need to apply for Medicaid, Revocable Trusts can be an important part of Estate Planning for people who are certain that they will be able to cover the costs associated with catastrophic injury and illness, and an extended stay in a skilled nursing facility.
When properly drafted, the benefits of Revocable Trusts
include:
Allowing you to enjoy the use and occupancy of real estate held by your trust, as well as the income generated by assets transferred to you Trust
If you become incapacitated, your trustee can manage your assets without interruption or complications
After your death, the trust assets are transferred without the expense, delay, public exposure and complications of probate
The transferred assets will not result in potential gift tax liabilities
Favorable income tax treatment for your beneficiaries because they receive the "stepped up basis" (increase in value over what you paid for your home, investments and other assets), so that upon subsequent sale of the assets your beneficiaries will have no taxable income upon the increase in asset value that occurred during your lifetime
Unlike jointly owned accounts or lifetime gifts, assets which are transferred upon the termination of your trust are not exposed to loss during your lifetime due to your children's unforeseen personal problems such as bankruptcy, divorce and judgment creditors
In the case of large marital estates, each spouse can obtain the federal estate tax exemption by establishing separate Revocable Trusts
The trust is revocable, so you are permitted to remove assets from the trust and use all of the trust's financial investments (not just the income) to support your lifestyle; and you can also terminate or change the trust at any time
Revocable Trusts do not protect assets from the Medicaid spend down requirements. Under the Medicaid rules, because you have retained the authority to remove whatever assets you wish from the Revocable Trust or revoke the trust entirely, you can be compelled to revoke the trust and to expend almost all trust assets for your care prior to qualifying for Medicaid. Only an Irrevocable Trust, appropriately drafted to comply with Federal and State Medicaid requirements, will protect those assets which were transferred to the Trust at least sixty months prior to attempting to qualify for Medicaid.
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