When considering our financial plans, we often think about investments, retirement accounts, insurance, college savings, near- and long-term goals, and much more. However, the part that is often left to the wayside is the estate plan. According to this CNBC article, nearly two out of every three Americans have not completed an estate plan.

When it comes to estate planning, many individuals are familiar with the idea of a will, but far fewer understand the critical role a revocable living trust can play in streamlining the transfer of assets and avoiding probate. At Whitaker-Myers Wealth Managers, we often guide our clients through the estate planning process to ensure their legacy is preserved and passed on efficiently. A revocable living trust is a powerful tool and one that more than likely benefits many families—but it’s not a complete solution. Here’s what it does well—and where it falls short.

What a Revocable Living Trust Does Offer

A revocable living trust is a legal entity you create to hold title to your assets during your lifetime. You maintain control over the trust and can change or dissolve it at any time while you're alive. Here are the key benefits:

1. Avoids Probate: One of the biggest advantages is that assets held in a revocable trust bypass probate court. This means your heirs can receive their inheritance faster, more privately, and without the added expense and delay of probate proceedings.

2. Continuity in the Event of Incapacity: Should you become incapacitated, your successor trustee (whom you choose) can manage the trust assets without the need for a court-appointed guardian or conservator. This provides peace of mind and continuity in managing your affairs.

3. Organizes Your Estate: A revocable trust can consolidate the ownership of your assets into one plan, which can simplify estate administration and ensure that your wishes are carried out exactly as you intend.

4. Privacy: Unlike a will, which becomes public record through probate, a trust remains private. The details of your estate and how it's distributed are known only to your trustee and beneficiaries.

   
   

What a Revocable Living Trust Does Not Do

While it offers many advantages, it’s important to understand the limitations of a revocable living trust. Misunderstanding these can lead to costly mistakes.

1. No Asset Protection: Because the trust is revocable (you can change it at any time), creditors can still go after the assets inside. If you're sued, the trust provides no protection. It also does not shield assets from claims related to liability or bankruptcy.

2. No Medicaid or Long-Term Care Protection: A revocable trust does not help when planning for Medicaid eligibility. Assets in the trust are still considered "countable" by Medicaid, which means they could disqualify you from receiving benefits for nursing home or assisted living care.

3. No Tax Shelter: Revocable trusts do not provide any estate tax advantages. The IRS treats the assets as still belonging to you, so they remain subject to estate taxes if applicable.

   
   

How to Protect What a Revocable Trust Can’t

Thankfully, there are smart and accessible strategies to protect your wealth in the areas where a revocable trust falls short:

• For Asset Protection: Buy an Umbrella Liability Policy: An umbrella insurance policy adds an extra layer of liability protection on top of your existing homeowners, auto, or other insurance policies. For a relatively low cost, you can shield your assets from lawsuits and claims that exceed standard coverage limits.

• For Medicaid Planning: Purchase Long-Term Care Insurance: Long-term care insurance can help cover the cost of nursing home care, in-home care, and other services that Medicaid may eventually pay for—but without having to “spend down” your assets first. Work with an independent insurance agent like those at Whitaker-Myers Insurance Agency who can shop the marketplace and find a plan tailored to your health, finances, and goals.

• For Tax Efficiency: Combine with Other Strategies: While revocable trusts offer no tax shelter on their own, they can be used in conjunction with irrevocable trusts, charitable trusts, or gifting strategies to reduce your taxable estate.

  
  

Conclusion: A Core Piece, Not the Whole Puzzle

A revocable living trust is often a foundational piece of a well-crafted estate plan—especially if you want to avoid probate, maintain privacy, and provide continuity in the event of incapacity. But it’s not a magic wand. You’ll need additional tools to fully protect your wealth from lawsuits, long-term care costs, and taxes.

At Whitaker-Myers Wealth Managers, we help clients think about and plan to work with their legal counsel to a holistic estate and retirement plans that consider not just what happens after you're gone—but what could happen while you're still here. With the right advisors around the table—your financial planner, estate attorney, and insurance professional—you can build a plan that provides security and peace of mind for every stage of life.