Are Revocable Living Trusts truly "Asset Protection" Trusts ?

Yes. And No. It depends on what you are trying to protect your assets from.

Does a Revocable Trust protect my estate against taxes? Not necessarily.

First, there are no South Carolina Estate taxes. Federal Estate Taxes are imposed only on larger estates (in 2009 that amount was $3,500,000. Congress will soon decide on a new level of estate taxation)(article amended 3/11/10). Estate taxes are a concern for a relative small segment of population (less than 1%) and only high net worth individuals need to engage in trust tax planning. It is unlikely that the average resident needs such "asset protection" from estate taxes. But married couples can, if they elect to do so, use specialized Living Trusts to shelter large amounts from taxes. But, A Revocable Living Trust is not

NEEDED for saving estate taxes. If tax planning is a concern for a married couple, a tax clause can be included in a set of Wills and will provide the same protection at fees much less than that of setting up Revocable Trusts.

Thus, A Revocable Trust is not needed to save estate taxes, but it is one of a set of legal tools that can save taxes.

Second, Revocable Trusts do nothing towards saving income taxes. Any income generated by assets in a Revocable Trust "flow through" to the beneficiaries (who are usually the Grantors, or creators, of the Trust) and are taxed at regular income tax rates, both state and federal.

Nursing Home Costs? The most common fear or perceived threat to assets of individuals over 65 is the loss of an entire estate from the devastating costs of nursing home placement. Your Revocable Living Trust does NOTHING to protect your assets against nursing home costs. By definition, assets in a Revocable Trust are considered available and countable for purposes of Medicaid eligibility. Because the owner of such trusts can always revoke it and access the assets within, the trust is considered a resource to be used to pay for those costs. The Revocable Trust must be depleted in its entirety before Medicaid will pay the bill. And if you've placed a home in your Revocable Trust, it must be removed from the trust as a pre-requisite for Medicaid eligibility. An Irrevocable Trust is a completely different arrangement (see Article on Irrevocable Trusts below this one) and assets in an Irrevocable Trusts are protected, but, the differences between the two types of trusts are great. Because assets in an Irrevocable Trust cannot be returned to the owner, they are no longer the assets of the individual, at least that is the way Medicaid regulations look at the difference.

Thus, Revocable Trusts do nothing to protect assets from nursing home costs.

Probate? Yes. Revocable Trusts save from costs and inconvenience of Probate and for this reason it is a very effective estate planning tool. But, it is more of a cost cutting device than an asset protecting device. A Revocable Living Trust can certainly reduce expenses to beneficiaries upon death of owners of Trusts- but during one's lifetime, and even after death, the Revocable Trust does very little towards protecting assets.