Top 5 Benefits Of A Revocable Trust For Estate Planning

Estate planning is vital for ensuring that your assets are distributed as you wish and that your family is taken care of after you pass away. Most people are aware that they should have a Last Will and Testament, but in some situations, a trust may also be advisable. Revocable trusts, also known as living trusts, have many benefits and should be considered during the estate planning process. If you have questions about the benefits of a revocable trust and how to set one up, you can learn more by contacting the experienced Texas and Florida estate planning lawyer of Fleurinord Law PLLC at (888) 904-2297.

What Is the Difference Between a Revocable Trust and an Irrevocable Trust?

In general, a trust is a distinct legal entity that someone creates to hold their assets. Trusts are used to ensure that the assets included in the trust are used according to the wishes of the person who establishes the trust, known as the grantor. Once assets are placed into a trust, they are managed by a third party, called a trustee. The trustee decides how to invest assets and may also be responsible for overseeing their transfer to a beneficiary once the grantor dies. Although the trustee has control of the assets, they must follow the guidelines established in the trust documents when managing these assets.

According to the Consumer Financial Protection Bureau, a revocable living trust is a legal document that grants someone else the authority to make decisions regarding the money or property held in the trust. Income from the trust is distributed to the grantor during the life of the trust, and the assets of the trust are only transferred to the beneficiaries of the trust when the grantor passes away. While an irrevocable trust cannot be changed after it has been created without the consent of its beneficiaries, in a revocable trust the provisions may be updated if the grantor wishes to make alterations. This flexibility is one of the major benefits of a revocable trust.

The Main 5 Benefits of a Revocable Trust

Revocable trusts have many benefits over an estate plan that only contains a will.

Avoiding Probate

When someone passes away with a will as the only part of their estate plan, their family must go through a legal process called probate. During this process, a court reviews the will to determine that it is valid and oversees the administration of the estate’s assets. The probate process is often lengthy and expensive. According to the Florida Courts, probate assets include, but are not limited to, bank accounts, investment accounts, life insurance policies, retirement accounts, and real estate properties.

Assets held within a trust do not need to go through the probate process. They are automatically distributed based on the terms of the trust when the grantor passes away. This allows beneficiaries to receive the assets left to them without being tied up in a time-consuming and expensive court process.

Continuous Management of Assets

Revocable trusts are also useful if the grantor becomes physically or mentally incapable of managing their own affairs. Under a revocable trust, the grantor’s property can continue to be used for their benefit. A durable power of attorney can also be used for this purpose, but it is limited compared to a revocable trust. Third parties like banks and brokers sometimes run into hurdles when dealing with a power of attorney agreement, while managing assets held within a trust is much easier because trusts contain specific terms outlined by the grantor.

Individuals who become incapacitated without a revocable trust or a power of attorney must go through a costly and lengthy court process. During this process, a conservator must be appointed before the incapacitated individual’s property may be used to benefit them or their family. After the conservator has been appointed, court supervision of the management of investments and disbursements of assets is typically a legal requirement. You can learn more about asset management and the benefits of a revocable trust by contacting the estate planning lawyers of Fleurinord Law, PLLC.

Assets Available at Death

The successor trustee receives the assets of a revocable trust upon the grantor’s death. For many families, the prompt distribution of these assets is key for handling various affairs, such as paying estate taxes, debts, and administration expenses. When a trust is funded before the grantor’s death, the trust owns the assets before and after the death and these assets are immediately available for liquidation.

Privacy

Wills are subject to the probate process, which is a matter of public record. This means that others can research the details of the will, including the size and beneficiaries of the estate. Conversely, trusts are private documents that do not need to go through probate, so the grantor’s privacy is protected.

Flexibility

An estate plan should be considered a set of living documents, meaning that the plan should be reviewed and updated as necessary. The plan should be reviewed regularly––at least once a year––and updated based on changing life circumstances. For example, if the grantor gets divorced and remarries, he or she may need to make changes to their beneficiaries. A revocable living trust makes it easy to make these changes, while an irrevocable trust cannot be changed.

What Are the Major Disadvantages of Revocable Living Trusts?

Although a revocable living trust can be extremely beneficial for some people, there are potential disadvantages. Some of the main cons of revocable living trusts include:

• Expense of set up and maintenance
• Need for additional, specific provisions to minimize state taxes
• Likelihood of unique assets involving administrative difficulties
• Need for annual review
• Limited asset protection

What Assets Should Not Be Placed in a Revocable Trust?

Not all assets can or should be placed into a revocable trust. Some assets that should not be placed in a revocable trust include:

• Retirement accounts: IRAs, 401(k)’s, 403(b)’s, and other retirement accounts should not be transferred to a trust, as this would require a withdrawal that triggers income taxes. However, the trust can be named a beneficiary of the account so that the funds can be transferred to the trust upon the grantor’s death.
• Health and medical savings accounts: These accounts allow the holder to use the money for medical expenses without a tax burden, so they cannot be transferred to a trust. However, the trust can be named a beneficiary for these accounts.
• Active financial accounts: Bank accounts that are used to pay for monthly expenses should be kept out of the trust so that they are more easily accessible.
• Vehicles: Vehicles like cars, trucks, boats, and motorcycles typically do not go through probate, so they do not need to be placed into a revocable trust.
• UGMA/UTMA accounts: If the trustee passes away before the minor holder of a Uniform Gifts or Transfers to Minors Account, the trust could potentially be required to go through probate.

Learn More About Revocable Trusts From Our Estate Planning Lawyer

The estate planning process is complicated, but important. If you have questions about the benefits of a revocable trust and whether you should set one up, the estate planning lawyer of Fleurinord Law PLLC is here to help. Call us at (888) 904-2297 to learn more.