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Dispatches

Five Situations When a Revocable Trust Can Help

A revocable trust can help a person manage or protect his assets should he no longer be able to manage them himself.

A revocable trust (also commonly referred to as a living trust) is a trust created to help a person manage or protect his assets should he no longer be able to manage them himself. A key feature of a revocable trust is the ability to amend or revoke them. They are also useful for avoiding probate.

The negatives of a revocable trust are costs and estate taxes. Assets held within a revocable trust are not exempt from the estate tax. Still, there are situations when a revocable trust makes sense. In a column written for Financial Planning, a website and publication for investment advisers, estate attorney Tracy Craig listed five such situations.

Probate Avoidance: Assets placed within the trust will be distributed according to the trust’s instructions, and will thereby avoid probate. Craig says this feature is particularly useful when real estate is owned in more than one state. The trust circumvents the chances of facing probate in several jurisdictions.

Privacy: Wills become public records when they are filed with the court. Revocable trusts remain private. Craig gave an example of preventing a ex-spouse from seeing what is in the estate. The privacy feature may also help to avoid disputes between heirs over inheritance.

Second Marriages: A revocable trust can ensure that children from a first marriage are taken care of. It can prevent the second spouse from disinheriting his or her stepchildren. Craig also notes that this type of trust can give the current spouse income from retirement accounts, while ensuring any balance remaining at death is passed along to the stepchildren.

Incapacity: Revocable trusts smooth the transition of control when a person is no longer able to manage his or her finances. This can be particularly useful in cases of accident, a severe illness or cognitive challenges related to aging. Other documents, including account titling and a durable power of attorney are also helpful for dealing with incapacity, but Craig believes a revocable trust works best.

Special Care Needs: A revocable trust can provide a stream of income for a family member with special care needs. Craig says this type of trust is particularly useful when an outright inheritance would cause the person to be denied government benefits.

Source: “Does Your Client Need a Revocable Trust?,” Tracy Craig, Financial Planning, July 14, 2014.

Discussion

Rudy Arena from AZ posted over 11 years ago:

Are there any reasons why a revocable trust would not be the right choice?


Peter Gallett from NY posted over 11 years ago:

Absolutely, there are reasons a revocable trust is not a good choice! Unless you absolutely need one for the few reasons given above, I'd suggest they are nonproductive and EXPENSIVE. With a revocable living trust, I've had to have an "Attorney's Opinion Letter" created each time I wanted to transact a home purchase/finance. It has cost me $600 (in NYC) each time a lawyer has to produce this boiler plate 2-page Opinion which merely affirms that I and the Trust are one and the same, and that our obligations are the same. My co-op board likewise required the Attorney's Opinion letter -- $600 for their lawyer (or his paralegal) to write or pull one off a template. Moreover, some ridiculous restrictions on the the personal use of my co-op were added. These added encumbrances made no logical sense. I have been seriously considering dissolving my trust, especially now that I read here that a revocable living trust leaves heirs exposed to inheritance tax -- something I just learned here. I have gotten no benefit from mine, just expense and aggravation. My advice -- CAVEAT EMPTOR.


Roger Grandpre from CO posted over 11 years ago:

Not concerned with privacy. Second marriage is not applicable.Iincapacity is covered by Living Will. Special needs is not applicable. Probate avoidance is a concern since I own property in two states,but both CO and AZ have Beneficiary Deeds available which avoid probate. I believe that with TOD and POD available for Savings Accounts,Brokerage Accounts,etc and items that transfer by beneficiary such as. Insurance Policies and IRA,s will all contribute to negate any need for a Living Trust.


Edward Macner from UT posted over 11 years ago:

How does a family LLC compare to a Revocable Trust? How can the assets in a Trust decrease in value when transferred into an LLC ? Is this correct?


Robert Otto from TX posted over 11 years ago:

Do the assets in a revocable trust get a stepped up basis on death?


Gary Steinberg from ME posted over 11 years ago:

If all my assets (mutual finds, brokerage accounts, homes in multiple states etc) are registered or titled " Joint tenancy with rights of survivorship", are there any reasons to have a Revocable Trust, or is this just unneeded cost and complexity if you have no living heirs and a spouse who you do trust to execute your wishes upon death??


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