Benefits of a Revocable Trust

The Benefits of a Revocable Trust are numerous.  Also known as a “Living Trust,” a Revocable Trust is formed by a grantor during his lifetime, and becomes irrevocable upon the death of the grantor.  The typical revocable trust consists of all or more of the grantor’s property, whth the trustee keeping the property and assets invested, and distributing the income to the beneficiaries.  Usually, during the life of the grantor, the beneficiaries are the grantor, his or her spouse, and possibly children or other relatives of the grantor.  After the death of the last of the couple, or the grantor, if unmarried, the property and assets are distributed by the terms of the Trust agreement.

Benefits of a revocable trust include:

  • Assets held in trust are not considered to be probate assets, and thus a probate estate can usually be avoided.  An exception would occur if assets are not transferred to the trust prior to the grantor’s death.

 

  • The trust agreement (or Declaration of Trust) is a private document, unlike a Will, which is required to be filed with the Court after the testator’s death, and at that time becomes a public document.

 

  • A revocable trust is not subject to a will contest.  Attacks on a trust must allege fraud, duress or undue influence, but because the trust is usually in existence for some time before the grantor’s death, such attacks are much less likely.  Additionally, trust litigation is brought in chancery court, and heard by a judge, not a jury – as would be the case with a will contest.

 

  • A revocable trust allows for the protection of property for certain beneficiaries.  For example, minor children cannot inherit, and it is often unwise to allow a eighteen-year-old access to a lump sum of money.  Adult children under the age of 25 probably should be more focused on finishing school and beginning careers prior to receiving an inheritance.  Additionally, heirs who are known spendthrifts can be protected, as can adult children in unwise or unstable marriages.  The terms of the trust can specify delayed distribution to these classifications of beneficiaries, depending on the wishes of the grantor.

 

  • Reduction or elimination of estate taxes can be a major benefit of a revocable trust.  The Federal tax exemption (which usually changes annually – 2010 being an exception) or “unified credit”, plus the marital deduction are exempt from estate taxes.  Through the use of a revocable trust, the potential federal estate tax on the surviving spouse’s estate, can be reduced by transferring that amount which will reduce his or her estate to below the unified credit.

 

  • The need for a guardian or conservator is eliminated upon the grantor’s inability to handle his or her financial affairs through the use of a revocable trust, and an appropriately selected trustee or successor trustee.  Generally there is no interruption in the management of property or assets.  Most financial institutions have a greater level of acceptance in dealing with a trustee and a property drafted trust agreement than is the case with a Durable Power of Attorney for Property.  (See, however, problems that can occur with estate planning documents drafted with Internet companies)   However having a POA with the authority to transfer property to the trust is useful if all assets and property have not been transferred prior to the onset of incapacity.

Each individual should, with the assistance of an experienced estate planning attorney, carefully consider the benefits of a revocable trust as part of an estate plan.  Clearly, any married couple with combined assets in excess of the federal tax exemption, or unified credit, should consider having  recovable trusts as part of their estate plans.

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