Misleading claims about revocable living trusts are becoming increasingly common online. In this episode of Trust This, Attorney Joe Seagle addresses several of the biggest misconceptions, including the belief that a revocable living trust automatically protects assets from lawsuits or creditors. Because the person creating the trust generally retains the power to amend or revoke it, assets held in the trust may still be reachable by creditors.
Joe also explains that a revocable living trust is an arrangement, not a separate legal entity like an LLC or corporation. While the grantor is alive, the trust is generally disregarded for federal income tax purposes, does not typically require a separate tax return, and is not an income tax avoidance strategy. Florida land trusts are also revocable trusts, but they are governed by a different section of Florida law and serve a distinct role in real estate ownership and privacy planning.
The effectiveness of any revocable living trust depends on whether it has been properly funded. Business interests, bank accounts, stock, land trust beneficial interests, and other assets must be correctly transferred or assigned for the plan to work as intended. When properly drafted and funded, a trust can help avoid probate, preserve privacy, support incapacity planning, and give a successor trustee the flexibility to respond to death, disappearance, divorce, or disability.
Transcript
Hey everybody, we’re coming up on the end of summer. And I just wanted to, you know, say hey to everybody. Thank you everybody for subscribing. who are subscribers. If you’re not a subscriber, please subscribe below. I also want to thank everybody for who who comments on the videos that we do. I really appreciate that because we we appreciate the feedback and all the content ideas that we get.
One of the content ideas I’ve gotten lately, it’s actually something I’ve seen all over the internet, and it’s non lawyers who are talking about Trusts and they don’t know what they’re talking about because in particular they keep talking about revocable living trusts. And they’re saying things and making promises about revocable living trust and that their company will help you put that together, or you can just go online on their site and put it together.
And I just wanna get rid of some misconceptions that are out there about especially revocable living trusts. And this includes land trusts to a slight extent because land trusts are considered revocable living trusts even though they’re in a different part of the Florida statutes than revocable living trusts.
So first, you know, I I want to put that out there. Land trusts fall under the real estate statutes under Chapter six eighty nine of the Flor Florida statutes, while revocable living trusts fall under Chapter seven thirty six for estate planning and probate. So that’s number one.
Number two, I just want to point out that those revocable living trusts that are under Chapter seven thirty six, they provide no asset protection. A lot of people on the internet I keep saying, just put everything you have into a trust, or and I’m presuming they mean a revocable living trust. Put that in a revocable living trust and you’ll never have to worry about anyone ever taking it from you. If you lose a lawsuit, they can’t touch it. And that is one hundred percent not true. Period.
So I want to get that out there. If it is in a revocable living trust, that means it can be revoked, it can be amended, it and whatever it owns. If there is a judgment against you and it is your trust, you are the trustee and or the beneficiary, it will be forced to be revoked and whatever you put into that trust can be pulled right back out and put into your name and the judge can order that that goes to your creditors. So they are not for asset protection.
Number two, they are not entities. They are not like corporations or LLCs. revocable living trusts are an arrangement. They do not exist without a trust agreement, a trustee, and a beneficiary. You have to have at least those three things present. And with a a land trust, of course, it doesn’t exist unless you also have a D out there. So always put that out there. It is not a freestanding entity.
So as such, number three, a revocable living trust does not have its own EIN, employer identification number, tax identification number, whatever you want to call it. It does not file a tax return. As far as the IRS is concerned, it is totally disregarded. It does not exist at all as long as the grantor or beneficiary is still alive. And so therefore there is no separate tax return, there’s no tax ID number for it. So you don’t have to do that for a revocable living trust.
So for that reason, and this is another myth I hear out there from these non lawyer gurus talking about trusts, revocable living trusts, they always throw out there that, it’s a great tax saving entity vehicle that you can use to avoid Taxes, income taxes. And that is 100%. That’s that’s not true either.
So I just want to get that out there because I I I just keep running across these things in my social media feeds and and everywhere. And it’s just not right. So let’s let’s dispel those myths right now while we have that out there.
Another thing is also your trust is only as good as what you have funded into it. So if it is a an empty trust, as we say, it is like an empty purse. You’re just carrying around a purse. It’s great. You’ve got a great wallet, but it’s empty.
If you don’t assign your LLC membership interest into it, if you don’t assign your stock into it that you own in your S corporation or your C corporation, if you don’t have bank accounts in the name of it, if you don’t move your beneficial interests from your land trusts if you don’t hold those in your revocable living trust. All of those aren’t working because ultimately the land trust the the I’m sorry, ultimately the revocable living trust’s purpose is to help you avoid probate.
And it acts like this giant toolbox that you give your trustee so that when you die or when you become incapacitated, then that trustee can go into that toolbox and go, okay, well here’s the things I’m going to do now. And at that point Yes, it becomes a lot like an entity and it will get its own tax ID number. It may create additional trust inside of it for different people, for different purposes, for different properties, for different assets. And it just gives that trustee all of this flexibility to do that.
And then yes, it can act as an asset protection vehicle for your heirs inside of that. And it keeps it all private. whatever happens inside the trust is not public record in the probate division of the courthouse. So that’s another that’s really the big reason you use it.
And I always point this out too. I mean there’s there are four things that are typically gonna happen during most human beings’ life. number one, they’re they’re gonna die. I call it the four Ds. You’re gonna die. So there’s death. there could be a disappearance. You just disappear.
I We’ve we’ve had relatives in our families who have gone out to get cigarettes and just never came back. They just disappeared. fortunately they did reappear years later, decades later, but you know, it was a long trip to the store. but you disappear.
Divorce, that’s another very big one that happens, and disability. Those are the four D’s that can happen to you. Death, disappearance, divorce, and disability. And a trust can help deal with some of those things.
It will definitely help deal with the death issue. If you disappear, maybe it can help there that the trustee, your successor trustee, can take over. disability, of course, if you are the trustee of your own Revocable Living Trust and you become disabled and you’re no longer able to handle your affairs, if everything is in that trust, successor trustee can step up and take all that over.
So For the divorce, of course, it’s not going to help very much. But there are things that with a prenuptial agreement combined with a a well-drafted revocable living trust, yeah, maybe it can help out in in that way as well.
So I just wanted to dispel the myths that are out there that I just keep seeing floating around the internet. It’s driving me crazy. and get that information out there. If there’s anything you want to comment about this, please feel free to comment below.
If you want to talk to us about it, of course, you know, make an appointment, talk to us. we’re happy to discuss the issues that you may have with your Revocal Trust.
and with that, I hope you all enjoy the rest of this great week of summer. I’m up here in Asheville and it’s just absolutely beautiful. There’s a breeze blowing, it’s sun setting over the mountains out that way. And I just hope that you guys enjoyed this. And if there’s anything you ever need, just let us know.
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