What Living Trusts Cannot Do

There are certain things that a will cannot accomplish.

As wonderful as living trusts can be, they aren't a complete estate plan by themselves. Here are some things that trusts can't do.

Shelter Assets for Purposes of Medicaid Eligibility

You cannot affect your eligibility for Medicaid by holding property in a revocable living trust. Assets held in a living trust are "countable resources" for purposes of Medicaid qualification. Because you have complete control over trust assets, those assets are treated just as if you owned them in your own name.

Long-Term Care: How to Plan & Pay for It, by Joseph Matthews (Nolo), explains Medicaid eligibility and asset protection in detail.

Convey Your Wishes About Medical Intervention

A living trust has absolutely nothing to do with conveying your wishes about life support systems and other medical intervention at the end of life. You'll need other documents -- an advance directive ("living will") and a durable power of attorney -- to make your wishes clear and legally binding.

warning Resource. Quicken WillMaker Plus software (Nolo) lets you make a living will and a durable power of attorney that express your wishes and are valid under the laws of your state.

Protect Assets From Creditors

A living trust does not provide any protection from creditors, at least while you're alive. Because you keep the power to transfer the property back to yourself or revoke the trust entirely, if a creditor sues you and wins, and a court issues a judgment against you, the creditor can seize trust property to pay off the judgment.

Change Your Obligations to Your Family

Most married people leave much, if not all, of their property to their spouses. But if you don't leave your spouse at least half of your property, your spouse may have the right to go to court and claim some of your property after your death. Some or all of the property you had earmarked for other beneficiaries would go to your spouse. (See Your Spouse's Right to Inherit From You.)

State law may also give your spouse the right to inherit the family residence, or at least use it for the rest of his or her life. The Florida constitution, for example, gives a surviving spouse the deceased spouse's residence. (Fla. Const. Art. 10, § 4.) And Minnesota law requires that a homestead (a dwelling owned and occupied by a deceased person at death) pass to the surviving spouse, regardless of a will provision to the contrary, if the deceased has no descendants. If there are descendants, the homestead goes to the surviving spouse for life and then to the descendants. (Minn. Stat. § 524.2-402.)

Nominate a Personal Guardian for Your Minor Child

You cannot use your living trust to nominate a personal guardian for your minor child. You must accomplish this task in a will. For this reason (and a few others), it’s a very good idea to Use a Backup Will in conjunction with your living trust.

In addition to these things that a living trust cannot do, there are significant Drawbacks of a Living Trust, including additional paperwork, record keeping, possible transfer taxes, and refinancing difficulties.

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