Sunday, October 4, 2009

Revocable Living Trust - Part 3

Here is the third and final part of the series on Revocable Living Trusts. This part focuses on when it is appropriate to use a Revocable Living Trust.

The first question goes something like this, “You have told me all of the advantages to a Revocable Living Trust, now what are the disadvantages”? Fair enough – here are the answers:

1. A Revocable Living Trust based plan usually cost more initially than a will. You remember the old Fram oil-filter commercial where they say “Pay me now or pay me later” – it’s the same way with an estate plan. A will is cheap and easy up front but at the death of the second spouse there is usually a probate. The cost of the probate and the related hassle associated with it could all have been avoided by doing a Revocable Living Trust up front.

2. There is no Court proceeding at death with a Revocable Living Trust. You may think that this is a positive thing, but some estates are so complicated or so messy, the family needs a Court to “clean up the mess”. If your estate is complicated or messy and you can’t clean it up during your lifetime, you may need a Court to do the dirty work after your death. If this is the case, the cost of probate would have been justified. In most cases however, paying 3% or so to probate a will is an unnecessary cost that could have been avoided.

The second question is, “Does a Revocable Living Trust protect Momma’s farm from the nursing home”? The question is flawed, as I will explain below, but the quick answer is NO.

The primary flaw in the question is the way that it is asked. The nursing home has no power to take anything. They are just a vendor. They are “selling a room” + nursing services each month in exchange for money. They know that (1) If Momma comes to them straight from the hospital, that Medicare may pay for up to 100 days; (2) After that, you pay until you are almost broke (we will have future blog articles on Medicaid qualification); (3) Then, you will qualify for Medicaid, which will pay for long term care. Again, the nursing home can’t take anything you have. They just want to be paid. It may just seem like they take assets because sometimes people have to sell things, like the farm, to use this money to keep a parent in a nursing home.

There is a way, however, to protect treasured assets, like the family farm. The secret way to do this will be revealed in our next blog.

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