Estate Planning Primer – The Revocable Trust

Not as well known as a Will, Revocable Trusts have become, in many ways, the most important document of all when creating and structuring an estate plan. If the Will is the foundation of your estate plan, then the Trust represents the walls and passageways, securing the assets in your estate, protecting them from prying eyes, and ensuring that they flow to their intended recipient.

Trusts come in many different forms, but the most common are the Revocable or “Living Trust” and Irrevocable Trust, with the Revocable Trust being the focus of this post. First we will explore what a Revocable Trust actually is, and then we will explain the three main reasons why a Revocable Trust is a necessary piece of any comprehensive estate plan.

What is a Revocable Trust?

Similar in structure to a Will, a Trust is a document executed by an individual that dictates who will receive assets upon that individual’s death. Although they are similar in structure, the Revocable Trust is perhaps the single most important document in your estate plan, for reasons explained below.

The typical Revocable Trust provides that any income received by the Trust shall be distributed to the Grantor. The Grantor usually appoints himself or herself as the initial Trustee, and also appoints a backup Trustee to manage the Trust in the event of incapacity or death of the Grantor.

A Revocable Trust can be altered during the life of the Grantor. Such alteration can range from appointing a new Trustee or amending the Trust to terminating the Trust entirely. It is important to note that upon the death of the Grantor, the Trust becomes Irrevocable, meaning no further substantive changes can be made until the Trust terminates. (Most Trusts provide for administrative or Trustee changes upon the death of the Grantor, for instance if the Trustee becomes incapacitated or dies and can no longer carry out the duties of Trustee, a new Trustee can be appointed.).

A Revocable Trust paired with a Will is one of the more common devices used in estate planning. It works by drafting a Will that contains a “pourover’ provision which provides that on death, all assets of the estate not already in the Revocable Trust are transferred into the Trust, to be managed by a Trustee appointed by the Testator. This is an important device to include in any estate plan to ensure that no assets pass through probate on the death of the Grantor. It should be noted that assets that are titled, such as your home, cannot be transferred to a Trust through a pourover Will. For titled assets, the Grantor must execute a separate document transferring that document into the Revocable Trust.

A Revocable Trust is also very useful in the event of incapacity on the part of the Grantor. If the Grantor becomes incapacitated, then a successor Trustee can step in and continue managing the assets of the Grantor. This allows Trustees to have power during the life of the Grantor, as opposed to the power of a personal representative, which only vests upon the death of the testator.

Why You Need a Revocable Trust

1) Avoiding Probate: a Revocable Trust is essential to avoid the probate of your estate upon your death. When an individual dies, his or her estate must go through probate, which is a legal procedure where a court administers the estate, resolves any claims against the estate, and distributes the assets of the estate. This can come with substantial cost and can be a prolonged process. Having assets flow into a revocable Trust is done as a way of minimizing costs to the estate, as the expenses associated with Probate can mount quickly. Many people think that if they do not own significant assets, then they do not need to have a Revocable Trust as part of their estate plan. This can be a costly assumption, as a smaller estate may end up having most of its value wiped away through the probate process. This is why its especially important for those with smaller estates to have a Revocable Trust in place to avoid the costs of Probate.

2) Incapacity: Another benefit to a Revocable Trust is that in the event of an individual’s incapacity, a Trustee can step in and continue to manage the assets of the Trust. This negates the need for the court to appoint a guardian or conservator to manage the assets of the incapacitated individual.

3) Privacy: People today are more concerned than ever about their privacy, and a Trust provides a veil of protection against those seeking to know your wishes regarding your assets. As opposed to a Will, which is filed in court and available to anybody who wishes to view it, a Trust is not filed and thus its contents are kept secret from prying eyes.

Conclusion

The Revocable Trust is one of the most powerful instruments available in Estate Planning. It is particularly useful because it allows the avoidance of probate and thus minimizes costs to an estate. It also can be useful during the life of the individual if that individual is rendered incapacitated. Finally, it is the polar opposite of a will in that its contents never become public record and your wishes remain private.

It is the position of McCarthy & Golden, LLC that every individual creating an estate plan should also consider executing a Revocable Trust. If you have questions about estate planning in general or are contemplating making changes to your current plan or creating a new plan, please contact us at (508) 833-0800.