Confusion about Revocable Living Trusts

A Revocable Living Trust (RLT) is one of the most widely used estate planning tools. Although widely used, there is some confusion about what an RLT can do for the creator (trustor) of the trust.  For this post, I will name three:

1 – An RLT provides the trustor protection against creditors.

This is not true.  Since the trust is revocable, the trustor can change the terms of the RLT at any time, and move assets in and out of the trust at will.  Due to the revocability of the RLT, a creditor can force the trustor to remove assets out of the trust to pay off judgments.

2 – Transferring assets to an RLT helps the trustor avoid taxes.

Again, not true. Income earned by assets in an RLT continue to be taxed to the trustor, and upon the trustor’s passing, all trust assets will be subject to the trustor’s estate. However, trusts may be used to help reduce estate tax obligations, but with the size of the current estate tax threshold, estate tax savings are rare. There are other estate planning mechanisms that may provide you with tax saving alternatives.

3 – An RLT protects a spouse’s share in a divorce proceeding.

Since a trustor retains the right to revoke the trust and recover the assets, the court in a divorce proceeding can divide those assets. Nevertheless, your beneficiaries may receive divorce protection for their share if certain language is included in your instruction for distribution.

If you have questions about what a Revocable Living Trust can do for you, please contact one the attorneys at Morris Hall.

Contributed by MH Phoenix Estate Planning Attorney Darren L. Richardson.

About Morris Hall:
At Morris Hall, we have focused our legal practice on estate planning for over 40 years.  Along with estate planning, our attorneys help clients and their families with matters of probate, trust administration, wills, power of attorneys, business planning, succession planning, legacy planning, charitable gifting and other important legal aspects.  We also have divisions in financial, real estate and accounting to help you incorporate all of your planning together, ensuring that everything works perfectly for your needs and situation. Our Arizona offices are located in Phoenix, Mesa, Scottsdale, Cave Creek, Tucson, Prescott, Flagstaff and Arrowhead.    Contact us today at 888.222.1328 to schedule an appointment!

This blog should be used for informational purposes only.  It does not create an attorney-client relationship with any reader and should not be construed as legal advice.  If you need legal advice, please contact an attorney in your community who can assess the specifics of your situation.