Defining a Revocable Trust
A trust is a written agreement which sets up a separate legal entity that names someone to be responsible for managing property for the benefit of others.
A Revocable Trust (also called a “living trust” or “revocable living trust”) is one type of trust.
It is a “living” trust because it is created during the lifetime of the creator. It is “revocable” because as long as the creator is mentally competent, the trust may be amended or revoked.
A Revocable Trust is considered a will substitute. By executing and funding a Revocable Trust some of the difficulties that occur during probate (the process of adjudicating a will) can be avoided.
What a Revocable Trust Can Accomplish which a Will Alone Cannot
Provide financial management of the grantor’s property- A will is only effective after death while a Revocable Trust can have a Trustee appointed at any time.
Avoid probate of most assets- Property in a Revocable Trust is available for immediate distribution after death because it does not go through probate.
Eliminate Challenges to the Estate- A will challenge is an all too common occurrence. A trust avoids this burdensome litigation.
Permits privacy- A Revocable Trust has privacy advantages because unlike a Will, it is not a public document.
What a Revocable Trust is Unable to Do
Cannot Reduce Estate and Income Taxes- Items in a Revocable Trust are still part of taxable estate. Certain types of Irrevocable Trusts can utilize tax avoidance measures.
Cannot Increase Asset Protection- Revocable Trusts are not suitable for debt protection or Medicaid planning.
Avoid costs associated with probate- Attorney, accounting and tax filing fees will still be incurred.
Disadvantages to a Revocable Trust
Cost– Drafting the documents and re-titling your assets costs significantly more than drafting and executing a will
Complexity- Transferring property into the trust and any subsequent transfer is frequently more cumbersome than transfer by an individual.
Probate- If you forget to transfer even one item that you own into the trust, probate will still be necessary.
Circumstances Where a Revocable Trust Has Clear Advantages
Real Estate Held in More Than One State- Real estate held in a Revocable Trust can avoid probate in multiple states.
Will Contest Expected- If you anticipate that an heir will contest your will- a Revocable Trust will avoid the expenses of litigation.
Likely Need for Financial Management- If you expect in future you will become incapacitated or otherwise unavailable to handle your financial affairs, a Revocable Trust will avoid costly guardianship proceedings or the possibility of a Power of Attorney being rejected.
No Immediate Family- Revocable Trusts can avoid costly and cumbersome court required search for heirs.
If you have more questions on Revocable Trusts, please give the experts at The Law Office of Joseph McConnon & Associates, P.C a call at (212) 343-5658.