Does a Revocable Trust Make Sense for Me?

As you grow older and accumulate more assets, having a solid estate planning strategy becomes increasingly important. Generally, a basic estate plan includes a Last Will and Testament (to handle the distribution of assets at death and the appointment of a Personal Representative/Executor to manage this distribution), a General and Durable Power of Attorney (to appoint someone to make financial decisions in the event of your disability), and an Advanced Medical Directive (to appoint someone to make health related decisions in the event of your disability). 

For many, the use of a traditional Last Will and Testament to distribute assets at death is inefficient, subjecting your estate to the probate process (the court-supervised distribution of assets). Probate delays the administration of your estate, often taking over a year to complete. Additionally, Probate can be expensive, as it subjects your estate to court costs and increased attorney’s fees (often between 2-4% of the Probate assets). Furthermore, Probate is public record, which allows any interested person to access the details of your estate upon your passing, including the appraised values of closely held business interests. It is important to note that Probate is required in the state of your primary residence and any other state in which you own real estate in your individual name. 

To help avoid the probate process, many choose to incorporate Revocable Trust Agreements as part of their estate plan. How do you know when a Revocable Living Trust is the right option for you? 

Chesapeake Growth Network is here to provide clarity. This article will delve into the benefits and drawbacks of Revocable Living Trusts, and guide you on whether this estate planning tool is right for you. 

The Purpose of a Revocable Trust 

A Revocable Trust is a substitute for a traditional Last Will and Testament, created during a person’s lifetime. All assets should be re-titled to the Revocable Trust or, alternatively, payable to the Revocable Trust via updated beneficiary designations on retirement accounts and/or life insurance policies. The Revocable Trust allows for the continued use of and control over contributed assets, as the individual is most often named as trustee and beneficiary of their own Revocable Trust. Successor trustees are named to control the investment and disposition of assets in the event of death or disability.

Following passing, the Revocable Trust distributes the trust assets to the named beneficiaries based on the terms of distribution found within the Revocable Trust. The primary benefit of assets being distributed pursuant to the Revocable Trust (as opposed to a Last Will and Testament) is that these assets can pass to your beneficiaries free of the Probate process.

The Revocable Trust uses your respective social security number, therefore, during lifetime no additional income tax returns are required for the Revocable Trusts. 

Pros and Cons of Revocable Trusts 

While there are substantial benefits to the use of a Revocable Trust, the investment is not necessary for everyone. It’s important to look at both sides to consider the best option for you and your family.

Benefits

Revocable Trusts offer key advantages over the use of Last Wills and Testament, including:

• Flexibility for any life circumstance: One of the biggest advantages of a revocable trust is the flexibility of its terms. The document can be updated at any time to change the trustee appointments and overall plan of distribution.

• Avoid probate court: Along with being expensive and time-consuming, Probate is entirely on the public record — meaning anyone can access information about your estate planning if they know where to look. Revocable Trusts boost the privacy of your decision-making.

• Protection for vulnerable family members: Grantors can add provisions to their Revocable Trusts to financially provide for minors or special needs individuals. This ensures that family members can enjoy a good quality of life without losing access to public benefits. 

Potential Drawbacks

Consider these elements of Revocable Trusts to decide if the investment is worthwhile for your goals: 

• Steeper immediate costs: Revocable Trusts are among the more expensive estate planning options. It is highly recommended that you enlist the services of an attorney to draft the document and assist in the transferring of assets into the trust.

• No tax shelters: The IRS treats funds in a Revocable Trust as they do any other assets in the grantor’s name, so grantors are not afforded income or estate tax relief. 

How to Determine if a Revocable Trust is Right for You 

Whether you are first learning about Revocable Trusts or are actively preparing to secure one for your future, seeking out advice from financial advisory experts is the best way to ensure all bases are covered. 

An estate planning attorney can help to determine whether a Revocable Trust is appropriate for you. Nicholas Crivella, Esq. and the team of attorneys affiliated with the Chesapeake Growth Network are here to help. We serve families and small business owners throughout the Chesapeake Bay corridor with superior connections to financial advisory and management services for any need. 

Contact the Chesapeake Growth Network team today to learn more about our estate planning services. Our next article will explore retirement planning as a tax planning tool, so be sure to sign up for email notifications from us to never miss a new post.