We discussed previously the proliferation of misinformation regarding Revocable Living Trusts, and why you should carefully do you own research. In the next few blog posts, we are going to discuss some of the most common misconceptions we see regarding RLTs.
The first misconception: “I want an RLT to protect my assets.”
When clients call us asking for a trust, often their reasoning is that they want to ‘protect their assets.' They have been told by an acquaintance, or read from some source, that an RLT will somehow shield their assets from creditors or taxation. This is not true.
An RLT in no way protects your assets from your creditors. If you die with a debt, that debt must and will be paid from your estate, regardless of whether your assets are in the ownership of a revocable living trust or in your own name. Your successor Trustee will have to work with your creditors to settle your debts before the rest of your assets can be distributed.
The source of this confusion is likely the fact that RLTs can offer asset protection—but not for you, the trustmaker (also called the grantor). If designed correctly, the assets held in a revocable living trust (which becomes irrevocable after your death) may be protected from creditors of your beneficiaries after you die. In layman's terms, this means that while your own debts will be paid with your assets whether they are in the trust or not, when your children inherit from you at your death, the assets remaining in the trust may have some level of protection from their creditors. For this reason, a trust can be beneficial when you anticipate that a child or other beneficiary may face creditors or lawsuits that could jeopardize their inheritance.
While asset protection is an option for those who need it, it is a much more complicated matter than simple estate planning, and it is not achieved with a basic will or living trust.
For more information about RLTs, call Peach State Wills and Trusts at (678) 344-5342. For more information on Estate Planning in Georgia, click here to request our free Guide to Estate Planning in Georgia.