Do You Need a Revocable Trust?

There are two basic estate planning tools to direct the distribution of your assets after death. The most basic option is to use a will that details the disposition of your property. Assets held in joint tenancy or accounts naming a beneficiary will not be controlled by a will, but other accounts, property, and personal belongings can be distributed by direction of a will.

Alternatively, a trust can be established in addition to a will. There are many different trusts that can be used to facilitate specific goals. For our purposes, we will focus on the most common, which is the revocable living trust.

How Does a Revocable Living Trust Work?

Working with an estate planning attorney, an individual or couple can establish a trust to hold assets. Typically, an individual or couple will serve as the grantor(s), contributing assets to the trust, and the trustee(s), who direct the disposition of the assets held in the trust. They can detail what assets can be held in the trust, the beneficiaries of the trust at death, and who will serve as successor trustee(s) in the event of incapacity or death.

The trust will include instructions for the distributions of assets and property after death. This can be as simple as a full distribution after death or require the assets to remain in trust to benefit heirs or other individuals. Reasons for additional control could be based on the beneficiary’s age, special needs, concerns about financial decision-making, or for asset protection purposes.

After establishing the trust, the trust must be funded. Funding entails re-registering any accounts or property with a title into the name of the trust. This can be done for homes, vehicles, banking accounts, and investment accounts. In some situations, it may also make sense to list the trust as the beneficiary of retirement or life insurance accounts.

It is important to note that re-registering assets and accounts into the name of the revocable trust does not mean that control is lost. In most cases, the owner maintains full control. Instead of serving as the direct owner, they serve as the trustee(s) who has full use and control over the assets of the trust.

As the name implies, a revocable trust is not set in stone. It can be changed or revoked during the life of the grantor(s), so long as they are of sound mind.

What are the Benefits?

There are several benefits to the use of a trust. A revocable trust allows full control over assets during life, but clear direction of disposition after death. It also allows control of trust-registered assets during a period of incapacity. How incapacity is defined and who can step in during a period of incapacity can all be defined by the grantor of the trust.

There are then the benefits of a trust after the passing of the grantor:

• Privacy – unlike probate, the assets held in a trust can pass on to beneficiaries without the disclosures required by probate
• Administrative simplicity – since the assets are not subject to probate, a successor trustee can distribute without the need for court approval. If assets are to remain in the trust, a successor trustee can begin serving as the main trustee shortly after the passing of a trustee
• Time and cost savings – the probate process can be both time consuming and costly. Assets held in a trust can avoid this process.

What’s Next?

The decision is not simply between a will or a trust: it is between a will or a will and a trust. The will is still needed to name guardians for minor or disabled children and designate an executor who will manage any assets held outside the trust. Typically, when a revocable trust is present, the will compliments the trust by instructing that any assets or property not held in trust be distributed to the trust at death. The trust would then provide the ultimate instructions for final disposition.

Adding a trust to an estate plan does increase the initial cost. However, this extra cost can often more than pay for itself in the savings captured by avoiding probate and smoothing the transition of assets at death.

A revocable trust serves its purpose both during the life of the grantor as well as after their passing, while a will is only active after death. For many, a will may be all that is needed. But for others, a well-executed revocable trust can significantly enhance an estate plan.

If you have any questions, please feel free to contact us or schedule a conversation.

Author:
Thomas Burleigh, CFP®, CTFA
Wealth Manager

Disclosure:

This post is not an offer or a solicitation to buy or sell securities. This may not be construed as investment advice and does not give investment recommendations. This should not be considered legal advice. Consult with an estate attorney for additional information. Any opinion included in this report constitutes the judgment of CMH Wealth Management, LLC as of the date of this report and are subject to change without notice.