Would a Revocable Trust Be Beneficial for You?

When developing an estate plan, a revocable trust can provide many benefits that, in most cases, significantly outweigh the cost of setting one up.

Here are three of the benefits of setting up a revocable trust.

Trust Basics

A trust is an written arrangement under which one person, called a trustee, holds legal title to property for a beneficiary. You can be the trustee of your own living trust and keep total control over the assets in the trust.

Trusts generally fall within two categories:

1. Living trusts created during the lifetime of individuals. Living trusts, also know as “inter vivos trusts,” include:

  • Revocable Trusts that you (the grantor or settlor) create and control during your lifetime. You can revoke or amend the trust as long as you live.
  • Irrevocable Trusts, in which the grantor relinquishes the right to amend or cancel the trust at a later date.

2. Testamentary trusts created upon the death of an individual through an instrument such as a will.

Benefit #1: You gain more flexibility when you plan for your estate. The trust allows you the flexibility to add or remove assets during your lifetime. You can also make changes to income beneficiaries and remainder beneficiaries or cancel the trust altogether. Nevertheless, extreme care should be taken before creating, amending or canceling a trust to ensure it is handled properly. Discuss it with your estate planning adviser.

Benefit #2: A revocable trust avoids probate and limits the costs that your estate and heirs will generally have to pay.

Probate is the court proceeding in which the executor named in the last will and testament petitions the court to declare the document as valid and allows the executor to collect and distribute assets according to the terms set out in the will.

This process can be very time consuming. If an estate winds up in probate, many months or even years may pass before the assets are fully dispersed. In addition, the court can place restrictions on how the executor can distribute assets. For example, if the estate contains real property, such as a home, the executor may have to obtain court permission to sell it.

With a revocable trust, the trustee can more efficiently distribute the assets. Moreover, the cost savings can be significant because the trust avoids all the paperwork, court intervention, hearings and legal filings that make up the probate process. These savings typically offset the initial costs of setting up the trust.

In addition, because probate of a revocable trust is generally unnecessary, the trustee can keep the terms of the trust private rather than having it become a part of the public court record. In other words, there will be no public disclosure of the trust assets and what your heirs will receive. However, if you name the revocable trust in your will — known as a “pour over will” — the court many require a copy of the trust for the court file.

Benefit #3: The trust can be used as a beneficiary for certain assets that are distributed outside of a will. These are assets that do not require probate, such as retirement accounts, life insurance and certain brokerage accounts with a payment upon death beneficiary (along with joint accounts). With care and proper advice, an individual can name the trust the beneficiary for some of these assets. When the assets are distributed to the trust, the trustee then disperses them according to the terms of the trust. Note: There may be tax consequences at the time of the transfer of some assets.

Discuss with your estate planning advisor whether a revocable trust would be beneficial in your estate plan. Using one can streamline the estate process and make it less expensive to collect and distribute assets.

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