Living Trusts can be tricky

Silver Tips is written by the Senior Citizens’ Law Office in Albuquerque.

The sale of living trusts has caused problems for many seniors in the past. Accordingly, it is appropriate to assess that product in more depth.

While many seniors and others have living trusts, and have obtained substantial benefits from having them, many others have purchased them needlessly. Thus, for example, living trusts are touted as a way to avoid probate.

Many assets—including bank accounts, stocks and homes—can be transferred to heirs without any probate, through free or low-cost transfer on death designations. Such assets can also be transferred to heirs without probate through the use of joint tenancy ownership, though there are serious drawbacks to that option.

As another example, living trusts are touted as a means of providing personal and financial management if you become incapacitated, while avoiding costly and intrusive conservatorships. But the same results can be obtained through use of powers of attorney, advanced health care directives, and special bank account designations. And, as already noted, comparatively few seniors need the estate tax-avoidance features attributable to living trusts.

The virtues of living trusts are often oversold, and their limits and alternatives are usually not stressed.

Occasionally, claims about them are clearly inaccurate or misleading. For example, some promotional material implies that living trusts can shelter assets from liability for long-term care costs. The implication is that someone can be eligible for Medicaid while having their assets in such a trust.

Since “living trusts” are customarily revocable, the exact opposite is true! Their assets will be counted an determining Medicaid eligibility (there are certain types of trusts whose assets are “sheltered” from Medicaid eligibility determinations; their use requires consultation with a qualified professional).

While this discussion has focused on living trusts, the same analysis should be applied to any product that is touted as a “great deal.”