A revocable trust, also called a living trust, is a legal document and entity where you can place your assets and assign beneficiaries to those assets. Because the trust is revocable, those assets remain fully in your control throughout your lifetime, and you can change the assets and beneficiaries listed in the trust at any time. A trust is an incredibly useful estate planning tool, and an experienced estate planning attorney can help you determine if a trust is beneficial for you.
A trust, like a will, distributes the assets in your estate to your beneficiaries. However, a trust will keep those assets out of probate court and public documentation. This means that your beneficiaries will receive the assets more quickly and with less cost and stress.
When you create any trust, you are the trustor or the grantor, and you typically operate as the trustee for a revocable trust. You then name a trustee successor, who will manage the trust when you pass. A comprehensive estate plan can have one or more trusts for different purposes. If you are considering making a trust for your estate plan, it can be helpful to understand the benefits and drawbacks that accompany a revocable trust.
How Can a Revocable Trust Help You?
There are several benefits to creating a trust:
- Avoids Probate Court
The main reason why individuals use revocable trusts is so that their estate avoids probate court. Probate is the process of the state inventorying and distributing your assets to your beneficiaries according to your will, along with paying creditors out of the estate. Probate can be lengthy and stressful, and your will may be subject to will contests.
By creating a trust, the process of inventorying assets, paying creditors, and providing assets to beneficiaries is typically faster and less costly to your loved ones. It also makes any will contests less likely to succeed.
- Protects Privacy for You and Your Loved Ones
The results of probate court will be public record. This includes all assets and their beneficiaries, as listed in your will, along with how much was provided to creditors. If you want to keep the assets you have private or keep private the names of those who received them, a trust enables the process of distribution to remain out of the public record.
- Flexible to Your Needs
A revocable trust is changeable, unlike an irrevocable trust. A revocable trust can be altered throughout your lifetime if you wish to change the assets it holds or the beneficiaries for certain assets. As long as you have the capacity to alter the trust, you are able to do so.
- Minimizes Estate Taxes
Although there are no tax benefits for you as the trustor, there are tax benefits if your state has an estate tax. If your estate reaches the threshold amount where it is subject to estate taxes, assets can be placed into a revocable trust to prevent that. This increases the benefits that your loved ones can receive from their inheritance.
What Can’t a Revocable Trust Do?
There are certain drawbacks to a revocable living trust:
- No Direct Tax Benefits
Because you still have complete control of assets in a revocable living trust, you are also responsible for the taxes on those assets. While you are alive, you do not receive any tax breaks or benefits from a revocable trust, as you do with an irrevocable trust. There are also no benefits for estate taxes, as assets are still considered part of your estate when they are in a revocable trust.
- No Creditor Protection
The assets in a revocable trust may still be subject to creditor claims. Although there are protections for assets once beneficiaries receive them, assets could still be claimed by creditors before that time.
- Expensive to Create and Maintain
Trusts are more costly than wills to create. If you have a complex estate, plentiful or high-value assets, or many beneficiaries, creating a trust will be more costly. In addition to an experienced attorney, you may need other financial professionals. It can also be complicated and expensive to maintain a trust.
Q: Is There a Downside to a Revocable Trust?
A: There are several benefits to revocable trusts. However, there are also some downsides, including:
- They can be expensive and time-consuming to create and manage.
- The assets in a revocable trust do not avoid creditor claims.
- There are no direct tax benefits while you are alive.
- You must retitle property in the trust and ensure that the listed beneficiaries match these records.
An experienced attorney can help you determine if a revocable trust is beneficial for your unique needs, if you only need a will, or if other types of trusts could be beneficial.
Q: What Assets Should Not Be Placed in a Revocable Trust?
A: There are certain assets that shouldn’t be put into a revocable trust. These include:
- Retirement accounts
- Vehicle titles
- International assets
- Health savings accounts
- Life insurance policies
Some of these assets or accounts can have named beneficiaries directly on the account, and placing them in a trust can actually have harmful tax consequences. Some assets, like vehicles, are exempt from probate, meaning that it would be unnecessary to put them in a trust. A revocable trust also does not protect assets from creditors.
Q: At What Net Worth Does a Trust Make Sense?
A: Anyone may be able to benefit from a trust, depending on their circumstances. You may want to establish a trust for your assets if you:
- Are married
- Have children
- Have assets in multiple states
- Have complex assets or certain high-value assets
- Want your assets and estate to remain private
- Wish to plan for potential incapacity
- Want to keep your loved ones from a long probate process
- Have many assets or a net worth of at least $100,000
Q: Why Choose a Revocable Trust Over an Irrevocable Trust?
A: A revocable trust allows the trustor to maintain control over the assets and beneficiary assignments listed in the trust. Irrevocable trusts, depending on the state, may require court permission, the consent of all beneficiaries, or both to alter the contents. A revocable trust is under the trustor’s control, and it can be changed whenever they wish if they have the legal competency to do so. If you wish to remove a beneficiary from an irrevocable trust, you may be unable to.
Contact Stange Law Firm for Estate Planning
Whether you could benefit from a revocable trust relies on your individual needs, the requirements of specific beneficiaries, and your wishes. Our experienced attorneys can review your situation and help you create an effective estate plan. Contact Stange Law Firm today.