Reasons to Have a Revocable (Living) Trust

A Trust is two things; 1) it is a document which acts as a Will substitute and explains how you wish your estate to be distributed, after your death; and 2) it is a means of holding title to property, both real estate, and personal property that has title.

A Revocable or Living Trust provides for management of the Grantors assets, during his or her lifetime. The Trust controls only property that is transferred into it. (Properly titling your assets is the key to effectively using a trust!) The Trust can manage property while the grantor is alive, and after death, as well. The Grantor is usually the initial Trustee and retains total control during his or her lifetime. The Grantor can add or withdraw property from the Trust, change any or all terms of the Trust Agreement, or revoke the trust in its entirety ~ any time he or she wishes.

Because the Grantor retains such substantial control over the trust assets, the IRS continues to treat him or her as the owner of the property. Any income received is chargeable to the Grantor on his or her individual tax return, and deductions can be taken, the same as before.

A Trust is an extremely flexible estate planning tool that can be designed to accommodate a wide range of objectives. It is important to remember, however, that trusts do not avoid probate. You can use a trust to avoid probate, only if all of your property is titled in the trust. Merely having a trust is not enough. Title is still the key.

Under current law, a revocable trust is the safest method for avoiding probate, since it enables the client to retain full control of the property, and has none of the drawbacks associated with joint property arrangements. Trusts are a relatively costly alternative to probate, however. Most attorneys charge $1,000 to $3,000 to prepare an estate plan, including a trust.

Aside from probate avoidance, trusts have two other primary advantages. The first has to do with how your beneficiaries receive their property.

A Trust allows you to control the distribution of assets upon your death. Without the use of a Trust, all probate property passes to the beneficiaries, prior to the close of the probate estate (i.e., usually within six months of the date of death). If you feel your beneficiaries might have difficulty managing a lump sum distribution of property over a short period of time, a trust allows you to stagger the distribution. (If you have minor children at the time of your death, and there is no trust, the probate court will appoint a Conservator to manage any property left to the children, until they reach age eighteen, at which time they would receive the property outright, in a lump sum). Many people feel more comfortable having their children receive property in smaller portions, over a longer period of time.

One former advantage of having a Trust has been all but eliminated. When the Federal Estate tax was repealed in 2010 and then replaced with a much higher exemption, it made the use of trusts to shelter assets from tax much less important, for all but the very wealthiest people. In 2013, the applicable exclusion amount was increased to $5,250,000 per person. That amount will be indexed for inflation, in future years. Barring any additional changes to the estate tax, a married couple can shelter over $10,000,000 from estate taxes, without the need to use a trust.