Why establish a revocable trust

A Revocable Trust is a multi-purpose trust that will operate very differently at three distinct points in time:. The principal purpose of a Revocable Trust is to provide a means for the efficient management, protection and distribution of your assets during your lifetime, in the event of incapacity, and after your death.

In most cases, a Revocable Trust operates without the need for any court supervision, generally resulting in increased efficiency and reduced costs when compared to many other estate planning vehicles. The probate court has jurisdiction to supervise the actions of fiduciaries appointed by the court to manage and transfer such property.

The probate courts review these reports or accountings to insure that the fiduciaries are properly carrying out their duties e.

For a client who has established a Revocable Trust, many of these probate court procedures become voluntary rather than mandatory. Until the appointment is made, no one would have authority to pay your bills or otherwise manage your assets.

On the contrary, as mentioned above, if you establish a Revocable Trust and later become incapacitated, the successor Trustee can immediately step in to manage the trust assets on your behalf. Thus, there would be little or no time when bills were not being paid or assets were not being invested.

Revocable Trusts are not the only means of avoiding the need for a conservatorship or guardianship proceeding in the event of incapacity. Unfortunately, these latter two options present some drawbacks. For instance, on occasion financial institutions may be reluctant to permit the agent under a power of attorney to enter into certain types of transactions. Naming someone as a joint owner on your account is generally not recommended, since it permits them to legally make withdrawals for their own use, and can subject the account to the claims of their creditors during their life and estate taxation upon their death.

Most attorneys charge legal fees for estate settlement work on the basis of a percentage of the taxable estate which is not affected by establishing a Revocable Trust or simply on the basis of the time needed to settle the estate. By and large, establishing a Revocable Trust does not significantly affect the amount of legal time needed to settle larger estates and thus does not reduce legal fees in those cases. When using a professional Executor, generally you will name that same professional as Trustee of your Revocable Trust upon your death.

As a result, total fiduciary and investment management charges will be much the same whether you use a Revocable Trust or not. As noted above, the trusts established under a Revocable Trust are not automatically subject to the same probate court administrative and reporting requirements as are trusts established under a Will. Therefore, depending on family circumstances, it can prove to be significantly less expensive to administer trusts under a Revocable Trust.

In addition, there may be certain state income tax benefits available only to trusts under a Revocable Trust and not to trusts established under a Will. Few people will want to or be able to transfer all of their assets into a Revocable Trust. A Will also is necessary to appoint an Executor, as in most cases the Trustee of your Revocable Trust will not be authorized to handle all matters relating to the settlement of your estate.

If you have minor children, you will wish to name a guardian for those children in your Will. Accordingly, while a Revocable Trust can be used as the vehicle for tax efficient estate planning, its existence in and of itself does not save estate, gift or income taxes.

If the Revocable Trust has taxable income or tax deductions, the Trustee will have to maintain all of the usual financial and tax records. Your accountant or tax advisor must be consulted to determine what type of return to file, if any. The disadvantages of a Revocable Trust are largely practical in nature, and include the following:. If you intend to transfer property to your Revocable Trust during your lifetime which is not necessary to achieve many of the advantages of having a Revocable Trust , doing so can occasionally prove to be cumbersome, time consuming and sometimes expensive.

In such cases, however, a co-trustee should also be named in order to ensure continuity of management in the event of death or disability. In most cases, the grantor retains certain rights over the trust during his or her lifetime. These generally include the right to instruct the trustee to distribute all or any portion of the trust property, as the grantor desires, and the right to change or revoke the trust at any time.

When a grantor dies, the trust acts like a will, and the property is distributed to the beneficiaries as directed by the trust agreement. This ensures continuity of asset management and financial support of the grantor, should he or she become disabled.

However, funding a trust at death does not avoid the necessity of probate. Creating a revocable trust is probably the best way to ensure that your property remains available to be used for your benefit, should you become physically or mentally incapable of managing your own affairs.

While continuity of management is also possible when a durable power of attorney is signed, third parties such as banks, brokers and transfer agents often have more difficulty in dealing with a power of attorney than with a trust agreement. And, if the designated attorney-in-fact is unable to act, the power of attorney may not be usable.

If you become disabled and you have neither a revocable trust nor a power of attorney, an expensive, lengthy, and potentially embarrassing court proceeding is generally required to appoint a conservator or guardian before your property can be used to benefit either you or your family. Even after a guardian has been named, continued court supervision over the management of investments and disbursements is usually required.

This can include annual bond fees, annual accounts and additional legal and accounting fees. Using a funded revocable trust may allow you to name unrelated, out-of-state individuals and out-of-state trust companies to act as the primary administrator of your property at death.

Without a trust, many jurisdictions limit your flexibility in this regard. Also, it is usually easier to make amendments to a revocable trust than to a will. Probate is the legal process required to determine that a will is valid. Because probate can be costly and time consuming, the avoidance of probate is often cited as one of the primary benefits of a revocable trust.

The extent of this benefit may vary from one place to the next. For example, avoiding probate may be a significant benefit if you own real estate in more than one state, because you avoid multiple probate proceedings. When offering a will for probate, all original wills must be provided to avoid a presumption that the will was revoked. Typically only one original must be produced at death. Since revocable trusts are not probated, multiple originals may be signed and one original may validate transferred property held in the trust at death.

Having a revocable trust, therefore, may simplify the transfer of property at death if the original will cannot be located or has been destroyed. There are a few disadvantages that may apply to using a revocable trust instead of a will.

Revocable trusts are flexible, allowing you to make changes or amendments up until your death. Along with amending it, you can also name unrelated, out-of-town individuals to act as the administrator, something that can be cumbersome with a will. A revocable trust is not made public upon your death, and your estate will be distributed in private. A revocable trust allows money to be available immediately after death.

The trustee will be able to use the money to pay for estate taxes, administrative expenses and debts. Revocable trusts are not tax shelters and provide no tax benefits. Most notably, individual retirement accounts IRAs and other qualified retirement accounts cannot be placed into your trust they must be owned by an individual. Trust planning for retirement accounts must be done very carefully; failure to do so can accelerate payments to beneficiaries and create adverse tax consequences.

You must retitle all of your assets that are to be held in the revocable trust. While this can be time consuming, it is the only way to reap the benefits of this type of trust. If you choose not to retitle an asset or you forget about one, it will fall outside the trust and will be handled separately. If heirs want to contest a will, most states have specific statutes that dictate who can challenge a will and for how long. This time period can be as little as 30 to 90 days.

If your heirs want to contest a revocable trust, however, they typically have longer than three months to do so. The time is subject to state-specific statutes of limitations, which are typically one to five years, but can be longer. Is a revocable trust the right estate planning vehicle for you? The best way to determine the answer to that question is to speak with an estate planning attorney about your situation.

Your attorney will help set up your estate properly in order to take care of the people you love once you are gone. And while it is no fun to think about planning for your passing, planning who will get your assets and how will give you — and your loved ones — peace of mind. Philip J.