The reason the revocable living trust is so appealing is in its name: it can be changed by the grantor at any time. The revocable trust lets you determine exactly how you want your estate to be distributed to beneficiaries upon your death, and can be used to put some assets out of reach of probate, says Barron’s in the article “Why a Trust is a Great Estate Planning Tool – Even if You’re Not Rich.”
Many people want to try to avoid probate, the legal process by which a will is deemed to be valid. The problem of probate is that in some states it can take a long time, and court fees can mount up quickly. Depending on where you live and how complex your estate is, it could potentially cost up to about 5% of the value of your estate.
There are a number of ways to avoid probate, including owning property jointly, using payable-on-death (POD) accounts, or payable-on-death transfers (each with potential unintended consequences). Many people use trusts to solve the probate problem. An estate planning attorney will review assets and determine which ones should be assigned to the trust. Some people chose to put all of their probatable assets into the trust. That may include brokerage accounts and real estate, jewelry, art collections and other valuables.
Retirement accounts, insurance policies and any other assets with beneficiaries are not included in the trust, because they do not go through probate.
The revocable trust allows you to control the trust, including making changes or revoking it completely.
There is a trade-off, however. Since the trust is considered part of your estate, it does not offer tax benefits or asset protection. An irrevocable trust is used by estate planning attorneys to remove assets from the estate, but they are difficult to change or cancel.
Another benefit of a trust is to provide you with clarity and control. A trust can be used to outline exactly how you want heirs to receive their inheritance. You can specify the ages and conditions for heirs. That may include completing college or reaching a milestone in life.
In families with special needs individuals, a Special Needs Trust is used to protect an individual’s ability to receive government benefits. Special Needs Trusts are designed so that disbursements can take place to cover costs for health or comfort that may not be paid for by Social Security, Medicare or other programs.
In blended families, trusts clarify which assets should go to a surviving spouse and which should go to the children of a first, second or even third marriage.
An estate planning attorney will be able to review your personal situation and make recommendations for the type of trust that will work best for you and your family.
Reference: Barron’s (Feb. 23, 2019) “Why a Trust is a Great Estate Planning Tool – Even if You’re Not Rich”