Understanding Revocable Trusts its advantages and disadvantages and how they fit into different styles of estate planning will help families decide if this type of trust is a good fit for their goals.
Also known as a living will, a revocable trust is a type of trust where the stipulated conditions can be stopped or changed if the grantor (you) feels it is a necessity. Revocable trusts will also allow income generated by assets owned by the trust to be disbursed to the grantor before their death. Beneficiaries are entitled to income of property of the trust only after the death of the grantor.
To set up a Living Trust, you first create a Revocable Living Trust document and appoint a trustee. You may then list the property you will place in the trust, as well as your beneficiaries. After executing your Living Trust document properly, you will need to transfer your property into the trust.
Advantages of a revocable trust:
Avoid conservatorship. With a Revocable Trust, you name a successor trustee to manage the trust and its assets in the event of your incapacitation. Courts are prevented from asserting control of your finances if you become incapacitated in any way and are unable to control your estate as you normally do.
Increased flexibility. The main benefit of a revocable trust is the fact that you can change its terms or even cancel the trust outright if you so choose as grantor. You will also benefit from monies earned from its assets during your lifetime.
No probate court necessary. Probate court is not a traditionally pleasant experience and probate is a given if you don’t have a trust to protect your assets and have everything spelled out ahead of time. With probate there is the possibility that your beneficiaries do not receive their assets or funds as you wished for months or years after your death.
Disadvantages of a revocable trust:
No tax benefits. Some might believe that a revocable trust is a form of tax shelter. This is NOT the case. No tax benefits are gained from this kind of financial instrument. In addition, your IRA or any other qualified retirement accounts cannot be put into trust, so you will have to plan for these investments in other ways.
Retitling process. To place assets in a revocable trust, you must retitle them, which may prove to be a time-consuming endeavor, depending on how many assets you have to put into trust.
Contest period. Finally, if you have many heirs you fear might fight your will, your home state will set a contest time period that can slow down the asset distribution process. Obviously, beneficiaries all being on the same page makes the process go much more quickly.
Wondering if a revocable trust is right for your financial situation? Contact your real estate professional and let them guide you in the right direction.