The Revocable Trust as an Estate Planning Tool
A revocable trust is typically viewed as an alternative to a traditional Last Will and Testament. A revocable trust is also referred to as a “Living Trust” or an “Intervivos Trust” and can be particularly attractive to those seeking to avoid probate.
The process entails creating a legal document whereby a trust is established. The grantor (the person who creates the trust) then re-titles all appropriate assets into the name of their revocable trust. The revocable trust will technically own title to most of the person’s assets, and the person who creates the trust will serve as trustee and control the trust assets.
There are no changes from an income tax perspective, and no additional tax filings required during the life of the grantor. The benefits of a revocable trust plan include the following: (1) probate avoidance; (2) save time and money if you own out-of-state real property; (3) assist with planning for incapacity; (4) privacy; (5) potentially less likely for disgruntled heirs to challenge the document.
However, there are some common misconceptions when it comes to a revocable trust. First, generally speaking, a revocable trust must be appropriately managed and funded in order to avoid probate. A funded revocable trust means the grantor of the trust has retitled the appropriate accounts, assets and real estate into the name of the revocable trust. If this has not happened, the revocable trust is unfunded and the assets remaining outside of the revocable trust may trigger probate.
Another common misconception is that once the revocable trust has been created, your estate planning is complete. Estate planning is an ongoing process, not a one-time event. Similar to the probate issue, the grantor needs to make sure that all assets are appropriately retitled into the name of the revocable trust. We often tell clients that by creating and funding their revocable trust, they are saving their children from having to gather, inventory, and retitle all of their assets upon their death.
Stay tuned to FMJ’s Trust & Estates blog for more information on estate planning tools.
This post was written by Trusts & Estates attorneys David Ness and Matt Jensen. If you have any questions or would like to discuss your estate planning options, contact David at firstname.lastname@example.org or Matt at email@example.com.