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Benefits of Revocable Trusts

Keel Point

March 20, 2024

A revocable or “living” trust is simply a trust that gives the grantor (the person who created and funded the trust) the ability to change the terms of the trust or to revoke the trust entirely at any time. Assets held by a revocable trust remain available to the grantor and are included in the grantor’s taxable estate at death. As discussed here, High Net Worth (HNW) individuals will benefit from incorporating a revocable trust into the estate plan. While a revocable trust will not reduce taxes, it will provide the grantor with several important benefits.

Avoiding Probate

While the probate process may be helpful in some cases, such as when disputes over inheritance are expected between family members, it is often expensive and results in needless delays in administering a decedent’s estate. One way to avoid probate is to create a revocable trust and transfer assets to the trust during the grantor’s lifetime. Property held in a revocable trust at the time of the grantor’s death will not be subject to the probate process. Assets passing as a result of the decedent’s last will are subject to the probate process.

Avoiding probate has several benefits. A funded revocable trust can enable a client to escape the publicity associated with probate. Revocable trust agreements are not typically made part of the public record as are a decedent’s last will. Thus, a revocable trust may be desirable for individuals who value privacy and wish to preserve it for heirs after death.

The probate court may require the estate fiduciary to file a detailed inventory of probate assets and periodic estate accountings. A client who owns an asset that is difficult to value, such as a closely held business, may benefit from avoiding the accountings required by many jurisdictions. The trustee of a funded revocable trust is not required to submit inventories or accountings to the probate court.

A revocable trust is particularly helpful for holding real or tangible personal property, especially if those assets are located in other states. Real estate titled in the decedent’s name but located outside his or her domicile state may trigger ancillary probate in the jurisdiction where the property is located. Ancillary probate can require hiring local counsel and will typically involve additional fees and delays. Ancillary administration may be avoided by holding the assets that are outside of the domiciliary state in a revocable trust.

Disability Planning

Many HNW individuals have appointed an agent under a power of attorney who has authority to make certain financial decisions for the principal if that person is disabled. A risk with relying on a power of attorney is that some businesses may not accept the power of attorney as legitimate or require additional documentation, delaying the agent’s access to the principal’s financial assets. This delay can be especially problematic when the principal is physically disabled and in need of medical care.

Most grantors name themselves as trustees of their revocable trusts. A properly drafted revocable trust will also name a successor trustee who can immediately assume responsibility for the trust upon the grantor’s disability. Accordingly, a revocable trust can be a helpful mechanism to enable immediate access to the grantor’s assets during a disability.

Estate Planning

Incorporating a revocable trust into the estate plan can mitigate the challenges in the probate process while carrying out the grantor’s intent for disposition of trust assets. Assets in a funded trust are immediately available to the trustee following the grantor’s death. As discussed above, the revocable trust agreement is not available to the public, and it can reflect the grantor’s unique wishes. A revocable trust can also eliminate beneficiary challenges to the probate process by incorporating a disinheritance clause. A revocable trust can be easily amended by the grantor during life as circumstances or plans change.

Disadvantages to Using a Revocable Trust

The principal drawbacks of a revocable trust are the time and expense of having the trust agreement drafted and executed and the nuisance of retitling assets in the name of the trust. There are no particular tax advantages to using a revocable trust and the trust will generally not shield assets from the grantor’s creditors.

On balance, a revocable trust is an essential tool for HNW individuals to incorporate into the estate plan.

By: Douglas Andre, Chief Wealth Officer & Senior Family Office Counsel of Keel Point

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