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The Flexibility & Benefits of a Revocable Trust

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  • The Flexibility & Benefits of a Revocable Trust

There are myriad benefits to forming a revocable trust. The term “revocable trust” can be a mouthful, but what a revocable trust really is, is a mechanism for retaining control over your assets during your lifetime while ensuring that things go smoothly, strategically, and according to your wishes upon your death.

Creating a revocable trust is, of course, an essential component of many estate plans. There are many first order benefits for this legal instrument including: probate avoidance, disability planning, and discreteness among other benefits. More specifically, assets placed into a trust will avoid probate which means that assets can be transferred more efficiently, more promptly and likely with less attorney fees and without the need for probate court intervention. Disability planning is generally a great boon to those who become disabled prior to death, and with a revocable trust (where the grantor is usually the initial trustee) a successor trustee can be named which will help to avoid costly guardianship arrangements. Finally, a living trust is not filed with the Court system, and so the details and size of the estate are not made part of public record.

As previously stated, usually the grantor (or the person who creates the trust) is the initial trustee. And this endows the grantor with the ability to use income, direct investments and manage the assets in the trust per their wishes and for their own benefit. That being said, successor trustees will have significant powers to act on behalf of the trust: including retention of property, sale of property, the power to enter into leases and subleases, the power to borrow and invest, the power to distribute property, power over securities, delegation and conservation of assets, the power to procure insurance, to compromise claims, and the ability to take other actions to manage and invest on behalf of the trust.

A revocable trust can be structured in many ways, but one of the most common, simplest and most effective trust plans is a Revocable Trust with Outright Gifts to All Beneficiaries. This is usually one of the best means of moving forward if the assets of the grantor are less than the exemption amount and their children or beneficiaries are adults. In this case, what will happen is that tangible property will be distributed by the trustee, cash will be distributed, and any other assets will be distributed according to your intent. The benefits of the trust are realized, and assets are distributed upon death of the grantor.

In the event that the combined estates of the grantor and/or grantor and spouse are below the exemption amount and their children are minors, the assets might be held in trust until the youngest child reaches the age of majority or according to some other timeline. Separate trusts can be created for each child to handle investments and distribution according to the intent of the grantor. Alternatively, the distribution of the entire trust can be made when the youngest child reaches the age of 25. A single fund trust can be helpful because the entirety of the estate can be invested as a pool, and the trustee can make distributions as necessary from income or principal to any one of the children and their descendants as necessary for health, maintenance or education. With separate child trusts, usually structured after the youngest child turns 25 or some other age, the income can be paid to the child, while the principal can be given in stages or as a whole according to the wishes of the grantor.

In the event that there is uncertainty as to what the value of the assets of the estate will be when the first spouse dies, tax implications might be hard to predict. In this case, an outright gift of the entire estate would go to the surviving spouse, potentially creating a buffer opportunity for tax planning.

There are many additional trusts structures that can be used to navigate the implications of IRAs, life insurance, qualified pension funds, investments, unique property holding structures etc. Trusts are a tremendous tool for handling estate planning, and they are almost always a critical component of a comprehensive estate plan. Moreover, trusts are not just for the ultra rich. If you have questions about your estate planning needs, please contact the trusts and estate lawyers at Wills & Trusts for a free, no obligation initial consultation.


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