However, none of this property will be protected if you accumulate substantial medical bills in your waning years. If you can't pay what's left after your insurance pays its part, the hospital could potentially go after your estate, including the revocable trust, to collect what it's owed. It could sue your trust, and would likely win, potentially forcing the sale of the family home you were trying to protect.
When it comes to paying your annual taxes, you’d pay taxes on all this property as if it were not in a trust, since you still have control of it. It would also count against you if you need access to government benefits as you age. Medicaid and Supplemental Security income both generally require you to deplete your assets before you can qualify, and a revocable trust is still considered an asset, even if the intent is to leave it to a family member.
In addition, if the home and property are substantial, worth more than about $13 million in 2023, they will be subject to estate taxes when the property passes to the trust beneficiaries. Even though those beneficiaries will be taxed only on the part that’s above the cutoff for the year they receive the property, that’s tax that they might not have to pay otherwise.
Irrevocable trust example
Let’s say you want to place the same property into an irrevocable trust instead. The irrevocable trust is a static object, and you can’t change it when you want, so you have to make sure that the beneficiaries you include are exactly the people you want to inherit the property. They will have to be responsible for caring for anyone else you otherwise would have included in the trust, such as family members who come under your care in the future.
If you get sick and have substantial bills in your future, the property is protected against lawsuits and collections, since the trust is basically in a legal vault and sealed away. You can’t dispose of it at will, so it’s not a liquid asset that can be pursued. (In practice, it sort of already half belongs to someone else.)
