Someday, all of this will be yours! Revocable Trusts are often better than will for succession planning.
Revocable Living Trusts offer advantages compared to wills for transferring wealth to beneficiaries that we will discuss together today. Next week we will discuss the disadvantages of Revocable Living Trusts.
Revocable Living Trusts are created when an individual (the grantor) signs a trust agreement naming a person(s), a corporation or both to administer the trust (the trustee). In many jurisdictions the grantor and the trustee can be the same person. A co-trustee should also be named to insure continuity of management in the event of the grantor’s death or disability.
Trusts can be funded upon the grantor’s death, but it’s better to fund it while the grantor is living to ensure continuity of management should he or she become incapacitated.
Funding a trust during a grantor’s lifetime requires re-registering securities, real property and other assets in the name of the trust. Re-registration of property is not required in trusts funded at the grantors death where the probate estate is simply “poured over” into the trust. However, funding a trust at death does not avoid probate. Funding a revocable trust during your lifetime avoids probate.
The advantages of Revocable Trusts over Wills
The advantages of revocable trusts are: continuity of management during disability, your property remains available and in your complete control to be used during the grantor’s lifetime, and the trust can be changed at any time during the grantors lifetime. Continuity of management can be created by signing a durable power of attorney. At times third parties like banks, brokers and transfer agents often have more difficulty implementing your wishes using a power of attorney than with a trust.
If you become disabled with no revocable trust nor power of attorney, an expensive and lengthy court proceeding is generally required to appoint a conservator or guardian before your property can be transferred to your family. Even after a guardian is named, continued court supervision over the management of investments and disbursements is usually required. This can generate additional legal and accounting fees.
Avoids Probate – funding a revocable trust during your lifetime avoids probate. Probate can be costly and time consuming. Avoiding probate is one of the primary benefits of a revocable trust. The Probate Estate must stay open for at least 6 months. Revocable Living Trusts can be administered immediately.
The Probate process is less preferable than a revocable trust because probate is less private because it must be public record and public notice must be given to creditors. Revocable Trusts require no public notice to creditors or anyone else.
Probate has the disadvantage of being relatively costly. Probate costs approximately 4–9 % of the estate value. This charge is not incurred with a Revocable Trust.
Assets are available at Death – Assets in a revocable trust are available at the grantor’s death. This means assets are available to pay estate taxes, administration expenses and debts immediately after death without waiting for a probate decree or the issuance of a preliminary letter. The property used to fund revocable trusts prior to death remains in the trustee’s name before and after the death and is immediately available for liquidation if needed to pay expenses.
No Interruption in Investment Management – Revocable trusts provide uninterrupted investment management if the grantor become disabled, and after the grantor’s death.
When a person dies without a will or a trust, they are referred to as intestate. There are many stories of families locked in major battles over a family member’s estate because there was no will or trust to establish the decedent wishes.
This is the case with the estate of the late granddaughter of actor Morgan Freeman. The 33-year-old woman was stabbed to death. Her estate included a condo worth approximately $800,000. When Morgan Freeman’s granddaughter was murdered, she was single, had no children nor siblings. She also died without a will or trust. According to the State law where she lived her estate goes to her mother and father because there was no will.
According to an affidavit filed by Freeman in an attempt to bar the girl’s father from inheriting anything, his granddaughter had only seen her father a few times in the past 30 years. Also the affidavit notes that the father had not contributed any financial support as the young woman was growing up. The affidavit characterizes her biological father a merely a “deadbeat dad.” Freeman affidavit maintains that his granddaughter would not want her assets to be inherited by the father she never knew.
If Freeman’s granddaughter had lived in Illinois at the time of her murder, the same rule applies if a person has no will or trust and also has no children or siblings, the assets are inherited by her living parents.
Revocable trusts are not for everyone. Whether a revocable trust is right for you depends on your specific needs and circumstances. The advantages of creating a revocable trust usually outweigh the disadvantages. The decision to create a revocable trust depends on each individual and family.
Next Tuesday we will discuss the Disadvantages of Revocable Trusts!
To schedule an appointment to implement this strategy and others within the context of your unique tax situation, Contact Brown CPA Group, Ltd., at (847) 509-4100.
About the author: Ken Smith is an Enrolled Agent and Senior Staff Accountant with Brown CPA Group, Ltd. We know that success means different things to different people. While a business owner strives to maximize profits, increase efficiency and plan for succession; an individual client is more concerned with tax planning, wealth management, retirement and estate planning. At Brown CPA, we work with you on the total picture. Together, we succeed.
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