Providing Things Honest: Revocable Living Trust

A Revocable Living Trust can be created, amended, and revoked during your lifetime. Because you still have control over property in the Trust, the Trust property is still “yours” for most practical purposes (including for estate and inheritance taxes), but it has the possible advantage of being administered by the Trustee outside of probate. A Revocable Living Trust is appropriate and may be the best choice if you own real estate (such as a second home) in another state.

If you own real estate in another state at the time of your death, it ordinarily must go through separate probate administration (known as “ancillary probate”) in the other state. Property transferred to a Revocable Living Trust will not be subject to ancillary probate at your death, which can save considerable costs, and simplify the administration of your estate and the transfer of the title in the “out of state” real estate. You also might consider a Revocable Living Trust for the management of your assets in the event you become incapacitated. You can be the Trustee of the Trust so long as you are capable of managing your assets, and when you become incapacitated the successor Trustee can step in to continue in your place. Asset management in the event of incapacity can be accomplished without a Trust, however, at a lower cost and with greater flexibility by using a well-drafted Durable General Power of Attorney.

Finally, many people have been led to believe that a Revocable Living Trust should be used to avoid the supposed cost and delay of the probate system. Although this may be true in some states, the probate system in most states is neither costly nor inefficient for the estate of a person who had a well-drafted Will.

Thus, for individuals who do not own property in another state, a Revocable Living Trust generally has no substantial advantages over a properly drafted Will coupled with a Durable General Power of Attorney. Nevertheless, in an appropriate situation, a Revocable Living Trust can be an important part of your overall estate plan.

Before you have a Revocable Living Trust prepared, you must first determine whether it is necessary and useful in your situation. Although Revocable Living Trusts are perfectly good estate planning tools (under appropriate circumstances), they are, unfortunately, the most common cause of elder fraud. A Revocable Living Trust is often wrongly recommended and oversold. Promoters of such Trusts frequently target seniors through free seminars and mail solicitations. These promoters know that seniors are concerned about making sure their “affairs are in order” and can be susceptible to high-pressure sales techniques. Revocable Living Trust promoters emphasize the allegedly high probate fees, delays, and supposedly damaging psychological impact of the probate process, and suggest you can avoid all of these fees and problems by using a Revocable Living Trust. What these promoters do not tell you is that the costs in creating and “funding” these types of Trusts are significantly higher than the costs of most Wills. In addition, the costs, taxes, and time commitment in administering a Revocable Living Trust are, in most respects, virtually identical to those involved with probating and administering an estate. These Trust promoters promise, falsely, that a Revocable Living Trust will allow you to avoid death taxes (i.e., both state and federal inheritance and/or estate taxes) and eliminate the possibility of a challenge by disgruntled heirs. Revocable Living Trust promoters also sometimes promise, again falsely, that Trust assets are protected against creditors or against being subject to payment for the cost of nursing home care. Therefore, before signing any documents to create a Revocable Living Trust, you should get an opinion from an attorney of your own choosing. In summary, Trusts (either Testamentary or Living Trusts) are valid and valuable estate planning tools when used under appropriate circumstances. These types of Trusts can be a wise choice in certain situations. You should definitely have an appropriate Trust created in the following two situations.

If you have one or more children with special needs who will never be able to support themselves financially due to physical or mental disability: It is absolutely essential to have an appropriate Living and/or Testamentary “Special Needs” Trust in this situation since a child who owns or inherits anything in his own name is likely to be disqualified from government assistance programs (programs which are either not available privately or are prohibitively expensive without government assistance); and

If you are a married couple with combined assets of over $5,000,000 in 2011 or 2012: As discussed earlier, an appropriate “Credit Shelter/By-Pass/Spillover” Testamentary Trust properly set forth in your Will can double the federal estate tax exemption and protect up to $10,000,000 from federal estate taxes in 2011 and 2012.

You should consider using an appropriate Living and/or Testamentary Trust if any of the following circumstances are applicable to you:

1. You have children or other beneficiaries under the age of 25;

2. You have a family member who has difficulty managing money;

3. You have a family member who suffers from an addiction;

4. You have a spouse or family member who will need nursing home care, or who has a serious illness;

5. If you have real estate in more than one state.

With regard to having an appropriate Testamentary Trust in your Will if you have children or other beneficiaries under the age of 25, it must be underscored and understood that many individuals are not able to handle money until they reach a certain age or maturity level. An appropriate Trust in these situations will provide a more responsible person or institution to handle money, pay expenses, and make distributions until the children or other beneficiaries reach a specific age. The Testamentary Trust is designed in these situations for when both parents die so that the Trust will take care of the children until the youngest is 25 (or until whatever age is set forth in the Testamentary Trust). Once again, since appropriate estate planning is dependent upon the individual or married couple’s specific circumstances, it is strongly recommended that you talk to an experienced estate planning attorney to create an estate plan that fits your particular needs.