What is a Revocable Trust?
When we begin to review of client's estate plan we explain to the client that they generally have two ways to distribute their assets at their death: through a will or a revocable trust.
A will is a document that states, in part, how you want the assets that you own in your name only to be distributed at your death. By contrast, a revocable trust, also called a living trust, is an entity that is created during your lifetime. The trust typically states that as the creator of the trust, you are able to use all assets inside the trust for your benefit. You act both at the trustee and the beneficiary during your life. After your death, the trust document appoints a successor trustee and that person is responsible for distributing your assets per your wishes as set forth in the trust document. After all assets are distributed, the trust is concluded and dissolved.
What are the Advantages of a Revocable Trust?
There are three primary benefits that a revocable trust provides when compared to a traditional will:
The primary reason most people create a revocable trust is to avoid probate. Remember probate is required when you have an asset in your name only that no one else can access. Probate is avoided when all assets that are in your name are re-titled in the name of the revocable trust. The trust then owns the assets, not you. You are only the trustee, the person that controls the assets but does not personally own them. As such, at your death, your trust now owns everything and probate can be avoided.
Real Estate in Other States
If you have real estate in more than one state, placing these properties in a revocable trust avoids probating your estate in these locations. So let's say you have a primary home in Clarksville, Tennessee and a lake house in Kentucky. You would likely have to probate the Kentucky property in that state because Tennessee courts cannot control Kentucky property. However, if the property was in a revocable trust probate can be avoided in Kentucky. The revocable trust survives your death and the successor trustee can then distribute the assets to the beneficiaries of your trust.
If your estate has to go through probate, there is a chance that the general public could learn of your assets if an inventory or accounting is required by the court. Documents filed in probate court are still public and are accessible by anyone. By contrast, trusts are private documents and they are not generally filed with the court. Placing your assets in a revocable trust can help ensure that your assets are kept private.
Helps Plan for Incapacity
When you create a revocable trust you act as the trustee of the trust for your lifetime or until you become unable to serve. Should you be incapable of managing your own affairs, the successor trustee that you have named in the revocable trust takes over the trust and manages the assets for your benefit.
Disadvantages of a Revocable Trust
A revocable trust is not for everyone. When we meet with clients we lay out the pros and cons for a revocable trust and compare them to a traditional will. Here are some of the disadvantages to a revocable trust that you should be aware of when you are planning your estate:
- Complexity. For people not familiar with revocable trusts, they can be confusing due to their complexity. It does take a bit of time for someone to wrap their head around how the revocable trust operates. This issue is especially true for family members that may serve as successor trustees and have no clue what a revocable trust is.
- Not Great for Simple Estates. If your estate is very simple and does not have many complexities, a revocable trust may not be the best fit for your estate plan. Revocable trusts can work well with more complex estate plans, but generally we recommend basic wills for simpler estates.
- More Work on Front End. A revocable trust does take more work for both you and the lawyer to set up than creating a will. The estate planning lawyer has more paperwork and documents to create and you must ensure that all your assets are accounted for and placed in the name of the trust. This requires you to visit banks, credit unions, and other financial institutions to change the title on accounts to the name of the revocable trust.
- Costs More. A revocable trust does cost more on the front end to create than a will due to the amount of work that goes into creating a revocable trust on the part of the lawyer.
How is a Revocable Trust Created?
Let's say that you decide that you want to create a revocable trust. Here are the steps that have to be taken:
- Set up a meeting with an estate planning lawyer and explain to that lawyer your circumstances. The attorney should describe what a revocable trust is and how it works and advise you on whether it is a good fit for your estate plan.
- Design the revocable trust. Some questions that you will want to consider are:
- Who do you want to be the successor trustee?
- Who are the beneficiaries of the trust?
- How do you want the assets of the trust distributed?
- Once you have your plan together, the trust attorney will then prepare the trust documents and send them to you for your review. Once they are approved by you, the lawyer will assist you in executing the documents. After you execute the documents, the revocable trust comes into existence and is created.
- When you create the trust, your work is not over. You must then re-title your financial accounts in the name of the trust, or at least add the trust as beneficiary on these accounts. By renaming your accounts, or naming the trust as beneficiary, you guarantee that these assets are in the revocable trust and not subject to probate.
- Your attorney should also help with the preparation of deeds for property. Generally, the attorney will draft quitclaim deeds transferring the property from your name to the name of the revocable trust.
What Happens To Your Revocable Trust After You Die?
Once you pass away, the first action that needs to be taken is to find the actual trust document and find out who the successor trustee is. Once the successor trustee is located and informed of your death, the successor trustee's responsibility is to now step in to manage the trust assets and coordinate with your executor to make sure all administrative expenses, taxes, claims, and general expenses are satisfied. Once that occurs, the successor trustee should disperse the assets of the trust in accordance with your revocable trust. Unless there is an asset that falls outside the revocable trust, there is no need to for the probate court to be involved in the administration of distribution of your assets.
Can I Create Trusts within a Revocable Trust?
Yes, you can create sub-trusts within the overall revocable trust. Whether you need to create a trust for children, a special needs trust, an asset protection trust, or a dynasty trust, those trusts can still be placed into the structure of the revocable trust.
Is there a Difference Between a Revocable Trust and a Living Trust?
No, revocable trusts and living trusts are the same type of trust. Sometimes these trusts are called "revocable living trusts" as well. All three names refer to the same type of trust. Attorneys just have different preferences with the names.
Interested in Creating a Revocable Trust? Call Trust Attorney John Crow Today to Lean More.
Revocable trusts are a great estate planning tool if your goal is to avoid probate and speed up distribution of your assets after your death. Trust attorney John Crow has extensive experience in creating revocable trusts and he is more than happy to answer any questions you have about fitting these trust into your estate plan. Give him a call today at 931-218-7800 to schedule an appointment.