For the second time in just a few weeks, I’ve been spending time doing battle with a Revocable Living Trust agreement, trying to provide a good outcome for my client. Although these agreements can serve important purposes, they are overused and often unnecessary estate planning tools for senior Pennsylvanians.
Revocable Living Trusts come in different shapes and sizes. Generally, the purpose of creating one of these trusts is to avoid probate because assets held in a trust are non-probate assets. For more on living trusts and probate, you can check out Attorney Marshall’s article on the topic by clicking here.
Often, these trusts are unnecessary. In Pennsylvania, the probate process isn’t usually overly burdensome or expensive. These trusts do not make assets unavailable when applying for Medical Assistance and often times they need to be “undone” to get assets back in the name of the Medicaid applicant. Because of this, the real purpose these trusts often serve is frustration for the trust’s creator, family, and attorney.
A lot of the revocable living trusts that we see are standard documents. This means that they’re not customized for the client and often times they’re sold to the masses through non-attorney marketers. The names on the forms change but generally the provisions don’t. We can usually see these documents from a mile away as well, because they usually come in gigantic binders filled with boilerplate legal terminology.
Some of the provisions in these trusts can cause significant headaches. One common issue revolves around the connection between the Settlor’s agent named in their Power of Attorney and the person named as Trustee in the revocable living trust. Often, the Settlor also serves as the Trustee. While the Settlor is alive and competent this is usually not a problem. If they become incapacitated, however, their agent may encounter issues accessing funds held in the trust because that is the duty of the Trustee. This often confuses clients because they assume that as the Settlor’s agent they can access their accounts if necessary. This may not be the case depending on who is named Trustee and how the trust is written.
Another common issue is what I’m currently dealing with – how to get assets out of the trust in the event this is necessary. Since these trusts are revocable, it would seem that the answer is simple – revoke the trust. The solution isn’t necessarily that easy. Sometimes the trusts only allow the Settlor to revoke the trust and state that this power is the Settlor’s alone, excluding the Settlor’s agent or Trustee from being able to exercise this power. If this is the case, if the Settlor becomes incapacitated the agent may need to find another way to “undo” the trust.
Although revocable living trusts can be useful tools in estate planning, they’re often not necessary and there are usually better estate planning options available. At our firm, we offer free consultations to new clients and present them with an opportunity to create an estate plan that is truly tailored to fit their needs. Before spending money on a revocable living trust, it’s definitely worthwhile to consult with an attorney who can advise you on whether this type of planning makes sense for you and your family.