People hear things at dinner parties, read posts on social media, and get advice from well-meaning relatives. Before long, they've built their entire understanding of revocable living trusts on shaky foundations. Some families avoid trusts entirely because of misinformation, while others create them expecting benefits that simply don't exist.
A knowledgeable Paoli estate planning lawyer can cut through the noise and provide accurate guidance based on Pennsylvania law, not neighborhood gossip. Let's examine the most persistent myths about these trusts and replace fiction with facts that help you make informed decisions for your family.
Myth #1: Only Wealthy Families Need Revocable Living Trusts
This misconception keeps countless middle-class Pennsylvania families from accessing a valuable planning tool. The truth? Revocable living trusts aren't reserved for millionaires with sprawling estates.
Families benefit from trusts when they want to avoid probate, maintain privacy about their assets, or create a smooth transition plan. These goals matter whether your estate is worth $200,000 or $2 million. Additionally, if you own real estate in multiple states, like a vacation home in Florida, a properly funded trust avoids ancillary probate in each state where you hold property. That's a concrete advantage for many middle-class families.
Myth #2: Revocable Living Trusts Protect Assets from Creditors
The truth is that revocable living trusts generally provide no protection from your own creditors during your lifetime, because you retain the power to revoke or change the trust. The word "revocable" holds the key. Since you maintain complete control over trust assets, creditors can reach those assets just as easily as if you held them in your own name. Pennsylvania law treats your revocable trust as an extension of yourself for creditor purposes.
For Medicaid eligibility purposes, assets in a revocable trust are treated as countable resources. If you need nursing home care, those trust assets are generally treated as available resources and must typically be spent down or otherwise addressed before you can qualify for Medicaid benefits.
The confusion often stems from mixing up revocable trusts with irrevocable trusts, which can provide creditor protection precisely because you give up control. Revocable trusts are planning tools for probate avoidance and smooth asset transfer, not asset protection vehicles.
Myth #3: Creating a Trust Means Losing Control of Your Assets
This fear stops many people from establishing trusts that would genuinely serve their interests. They imagine having to ask permission to access their own money or sell their property. Completely false.
With a revocable living trust, you typically serve as the initial trustee, which means you maintain the same control over assets you had before. Want to sell your house? You can. Need to access investment accounts? No problem. You're the trustee with full authority.
The control question only becomes relevant when you die or become incapacitated. That's when your named successor trustee steps in to manage assets according to your instructions. But during your lifetime, while you have capacity, you maintain complete control.
Myth #4: Trusts Eliminate All Estate Taxes in Pennsylvania
Revocable living trusts are tax-neutral, meaning they provide no inherent tax advantages on their own. Here's what that means in practice:
- Income taxes. You don't file a separate tax return for the trust. Instead, all income from trust assets is reported on your personal return under your Social Security number, exactly as it would be if you owned the assets directly.
- Estate taxes. At death, trust assets are included in your taxable estate just as if you owned them outright. The trust doesn't remove assets from estate tax calculations or provide any shelter from federal estate tax.
- Pennsylvania inheritance tax. Pennsylvania doesn't impose an estate tax, but it does have an inheritance tax. The rate depends on your relationship to the beneficiary. Creating a revocable living trust doesn't change these rates or eliminate the tax.
Where trusts can provide tax benefits is when they're combined with sophisticated planning strategies like bypass trusts or dynasty trusts. But the basic revocable living trust itself is tax-neutral, neither helping nor hurting your tax situation.
Myth #5: You Don't Need a Will If You Have a Trust
This trust misconception creates dangerous gaps in estate plans. Even with a properly funded revocable living trust, you absolutely need a will. More specifically, you need a "pour-over" will that works alongside your trust.
No matter how diligent you are, some assets will likely remain outside your trust when you die. A pour-over will acts as a safety net, catching these overlooked assets and directing them into your trust. The will essentially says, "Anything I own at death that isn't already in my trust should be transferred to my trust and distributed according to the trust terms."
Myth #6: Setting Up the Trust Is Enough on Its Own
Creating a trust document accomplishes nothing if you don't actually transfer assets into it. "Funding" the trust is absolutely essential. A trust is simply a legal container. If you never put anything in the container, it can't accomplish its purpose. Unfunded or partially funded trusts are a common failure point that sends major assets through probate anyway, defeating the entire purpose of creating the trust.
Funding a trust means retitling assets in the name of the trust. For real estate, you execute and record new deeds transferring ownership from your individual name to your trust. For bank and investment accounts, you work with financial institutions to change account registration. For business interests, you transfer ownership according to your operating agreement or corporate structure.
Get Accurate Information About Trust Planning
These myths persist because people rely on casual conversations and internet searches rather than getting living trust facts from Pennsylvania estate planning attorneys who understand current law. Your brother-in-law's trust advice, while well-intentioned, might be based on rules from another state or information that was never accurate to begin with.
When properly funded, revocable living trusts maintain privacy, avoid probate, provide for incapacity, create smooth asset transfers to beneficiaries, and can eliminate ancillary probate for out-of-state property. They don't protect assets from creditors or Medicaid spend-down, eliminate taxes, or replace the need for a will. That's perfectly fine, because those aren't what they're designed to accomplish.
The attorneys at Ruggiero Law Offices help Pennsylvania families separate trust facts from fiction and create estate plans based on accurate information. We explain what trusts can and cannot do, then recommend strategies that actually accomplish your goals under Pennsylvania law.