A revocable living trust is a powerful tool for avoiding probate, maintaining privacy, and streamlining administration, but it has limits. Four common misconceptions deserve a quick reality check:
- It does not control medical decisions. A living trust handles financial affairs, it is not a living will and does not direct end‑of‑life care. Add medical documents such as a healthcare power of attorney/advance directive to authorize someone you trust to make healthcare decisions if you cannot.
- It does not protect your assets from your creditors while you are alive. Because a revocable trust can be changed or cancelled and you retain access to the assets, creditors can generally reach them to the same extent they could if the assets were in your name. You can, however, include provisions to protect what your beneficiaries receive after your death.
- It does not help you qualify for Medicaid. Assets in a revocable trust are still considered available resources for Medicaid eligibility because you retain control and access. Qualifying strategies typically involve different tools, such as properly structured irrevocable trusts, implemented well in advance.
- It does not change your income taxes during life. You continue to use your Social Security number and file the same returns, trust income is reported just as before. A separate tax ID and trust return are usually required only if the trust continues after your death.
A well‑crafted plan pairs a living trust with the right companion documents and funding steps so each tool does what it’s designed to do, no more, no less.
If you would like to learn more, or set up a complimentary estate planning consultation with one of our Madison, Wisconsin estate planning attorneys, please contact us and we can schedule a time to meet.