There is much misinformation in the world about wills and trusts. Last week, I had the privilege of presenting to a group of healthcare professionals and seniors about the necessity of planning and the type of planning everyone needs. The one myth I hear over and over is that if you don’t have a will or a trust, the State takes your stuff. I asked the group if they had heard this tall tale before, and many raised their hands. Maybe they even believed this myth, too. I didn’t want to embarrass anyone, so I didn’t ask for a show of hands.
In this brief article, we will continue along those same lines and uncover five myths specifically about Trusts and what you can do to ensure that your wishes are carried out and your loved ones are cared for in the event of your incapacitation or death.
The general public misunderstands trusts, but if you think of it as a holding place for your “stuff” (aka assets), you can begin to see how it all works. I usually use the image of a dresser with drawers. Each drawer holds assets like property, investment accounts, and other stuff you want to pass on to your family. This is where the magic happens; after you create your trust, you have to fund it. That means titling your stuff in the name of your trust. Many families go through probate because their loved one created a trust but never transferred any property or assets to their trust.
So now that we can picture a dresser with drawers holding your stuff in your trust. Let’s look at some things your Trust will not do.
MYTH # 1: Revocable Living Trusts Do Not Reduce Taxes
While a revocable trust has many purposes, including avoiding probate and creating certain terms for using the money within the trust, they do not prevent inheritance tax or estate tax. Other types of trusts can be created to avoid or reduce estate tax. Currently, your estate only pays federal taxes if your estate is valued at $12.9 million dollars or over. This amount is due to be reduced in 2026. We will see if that happens and how much it's reduced. For now, it's necessary to know that only estates over $12.9 million dollars are taxed.
MYTH # 2: Probate Should be Avoided at all Costs
Probate does take around four months, but it’s relatively straightforward in Florida. The horrible probate cases you hear about are those in which the deceased family member did not plan properly or didn’t communicate their plan to their family. We always encourage our clients to have an honest and open conversation with their families to explain their wishes. If you tell your family what you want done with your stuff and execute a valid will or trust, there will not likely be any surprises that cause a family member to initiate a lawsuit and drag out the probate process. The nightmare cases you hear about are usually because someone was surprised, they were not left anything or what they wanted and then tried to invalidate the will for various reasons.
MYTH # 3: Only a Revocable Living Trust Can be Used to Avoid Guardianship
While a living trust can be created to make financial decisions for an incapacitated person, so can a durable power of attorney. In fact, a power of attorney may be a better option for avoiding financial decision-making guardianship. Furthermore, if you become incapacitated, you will most likely require guardianship that takes on the medical and day-to-day living decision-making as well. A living trust cannot, of course, accomplish this. This is why we always use proper incapacity planning with directives to avoid guardianship. Guardianship is more of a giant nightmare than probate is.
MYTH # 4: Revocable Living Trusts Can Be Used to Avoid Creditors
When the grantor of a trust is still alive, the assets within a revocable trust are the property of the grantor. As such, creditors can pursue these assets as if their money were in a bank account or written into a will. A revocable trust cannot legally shield your assets from creditors. Only an irrevocable trust can accomplish that.
MYTH # 5: Revocable Living Trusts help qualify for Medicaid and Veterans Benefits
A living trust does not help an over-resourced Medicaid and Veterans Benefits applicant obtain benefits. An irrevocable trust is not only a good plan to protect your stuff from creditors, but it can also help you qualify for Medicaid and Veterans benefits. However, you have to plan ahead to take advantage of these benefits. For Medicaid purposes, your trust has to be created five years before you apply for benefits. For veterans' benefits, your trust has to be created three years before you apply for benefits.
Estate planning is not difficult. You don’t need a lot of documents or information. Once you retain our office, we will send you a brief questionnaire to complete with the information you have handy at this very moment. Once we receive the information from you, we will review your plan to ensure we draft your unique plan with your specific wishes. Then, in about two weeks, you sign your plan! That’s it.
We look forward to assisting you in preparing this final gift for your family.