People often assume that a Last Will and Testament (“Will”) is the most effective estate planning tool for passing on their assets to their beneficiaries and the template to structure their estate planning goals. However, any thorough estate planning discussion should also include a review of the benefits of establishing a revocable trust, as relying solely on a Will to transfer your assets has potential disadvantages.
Here are 4 reasons why a revocable trust may be the right solution for you and/or your loved one’s estate planning goals:
1. Probate – A Revocable Trust Avoids Probate
Probate is a legal process, supervised by a court, by which a Will is proven to be valid. All assets transferred to your beneficiaries via a Will must go through probate first. Depending on your state, the process can be quite lengthy and expensive. It is not uncommon for a reasonably modest estate to take a year to eighteen (18) months to complete the probate process. However, assets held in a revocable trust are not subject to the probate process and can be distributed to your beneficiaries, according to your wishes, without court oversight.
2. Privacy – A Revocable Trust Maintains Your Privacy
Privacy is one of the notable benefits of a revocable trust. When transferring your assets through a Will, upon your death, your personal representative must go to your local courthouse, file your Will for probate and report all information of your estate’s administration to the court. Thus, all details of your estate, including the property you own and to whom it was left, become public record. Nearly anyone can view or obtain a copy of your documents at any time, or come to the courthouse to observe the records of your estate. Conversely, a revocable trust is a private document not reported to any supervising authority. It remains confidential during your life and after you die. It may also be submitted directly to any governmental tax departments (i.e. IRS or Pennsylvania Department of Revenue, Inheritance Tax Division) to remain confidential and out of the public record.
3. Incapacity – A Revocable Trust Maintains Control of Your Assets If You Are Disabled
In the event that you become disabled and are unable to manage and control your property, assets that you have placed in a revocable trust will be controlled by someone you have previously and purposely chosen to serve as a successor trustee (most likely a trusted family member or friend). Your chosen successor trustee can step in immediately and without court intervention to manage your property. In essence, if you are incapacitated, a revocable trust acts similar to a Power of Attorney by allowing someone to be named your successor trustee to assist you in managing your assets held in the revocable trust during your lifetime. This structure also provides a “consolidation road map” to your successor trustee because the assets funded into your revocable trust have been aligned and located to easily manage during an issue of triggered incapacity. However, please keep in mind that a Power of Attorney remains a necessary tool to your foundational estate plan, to govern your individual rights and interests, and is not replaced by a revocable trust.
4. Minors – A Revocable Trust Protects Property for Minor Beneficiaries
One of the most important reasons for establishing a revocable trust may be to protect the assets of a minor beneficiary. For instance, if you die and your minor child is the beneficiary of your life insurance policy, IRA or pay-on-death bank account; the court will step in to appoint a guardian to hold the proceeds in a sequestered account until the child reaches majority age (usually 18), at which time the child would gain control of the assets. However, establishing a trust for your minor child, within a revocable trust, and naming that trust as the beneficiary of the policy or account, allows you to determine exactly how and when the money is to be distributed to your child and provides investment options to continue the growth of principal assets while your child is a minor. A testamentary trust for a minor child can be established under your Will; but as indicated above the funding and creation of the testamentary trust may be held up by the probate process. Using a revocable trust to accomplish this goal will more than likely speed up the process and provide more flexibility to the benefit of minor beneficiaries.