Revocable Trusts: A Good Idea?
What is a living or revocable trust?
A trust is a legal way to maintain, manage, and distribute property. Every trust must have four elements: (1) a creator of the trust, called the “settlor” or “grantor” (2) assets, also called a “corpus” (3) a person who owns, manages and distributes the assets, called the ” trustee “and (4) a” beneficiary, “the person for whose benefit the trust is created. A living trust is revocable. In most revocable trusts, the settlor, the trustee, and the beneficiary are the same person.
Who doesn’t need a trust?
There are some people who will not benefit from a living or revocable trust. Those who are married without significant assets and without children who intend to leave their assets to each other, for one. Anyone else who does not have significant assets and has very simple estate plans also does not need a living trust. Finally, anyone who wants judicial supervision of the administration of his estate should not have a living trust. (Assets remain in trust, there is no “estate”). Succession can often be avoided without using a living trust, establishing “payable on death” accounts, making beneficiary designations, holding assets jointly, and so on.
Why do people create trusts?
By creating a revocable trust, people can avoid probate. Additionally, these trusts avoid guardianships because if you become disabled, a trustee is already in place to manage your assets for you. And you won’t have to deal with lawyers or courts. However, revocable trusts can and are challenged, just like a will. And managing a trust after your death is not free. Even if probate is avoided, the successor trustee will seek the assistance of an attorney to ensure that debts are paid, all necessary tax forms are filed, and assets are properly distributed to your beneficiaries.
What are some misconceptions about these trusts?
Living trusts always avoid probate. After death, the revocable trust will not eliminate creditors’ claims against the trust assets. Therefore, many times the successor trustee will open an estate anyway to require creditors to file claims within the time required by law or they are prohibited from collecting claims against the estate.
Living trusts save state and federal estate taxes. Yes, but there are other taxes.
Living trusts can manage your property if you become disabled. That’s true, but a durable power of attorney is a much less expensive and easier alternative.
Who should have a revocable trust?
People who own property in another state. (Real estate is legalized where the property is located. If you live on a farm in Pennsylvania and also have a vacation condo in Arizona, you will have two estates. A trust avoids this because the property is part of the trust and there is no estate to The trustee manages the trust, including both properties).
People who are concerned that they may become disabled and will be subject to undue influence as a result.
The beneficiaries of the estate are disabled.
People live or spend a significant amount of time in a state where probate is time-consuming, burdensome, and expensive.