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If you are reading this Article, someone has likely told you that you need or should have a “Revocable Trust” or a “Living Trust.” In fact, people may tell you horror stories about what will happen if you do not have a Living Trust. Someone at a seminar might have said to you that a Living Trust is a cure-all and, for a hefty fee that “someone” will draft a Revocable Living Trust for you and give it to you in a handsome, faux leather binder.
Is a Revocable Living Trust Right for you? Let me first give you some quick thoughts, then debunk some Revocable Living Trust myths and half-truths. Finally, let’s talk about the good things a Revocable Living Trust can do so you can deduce if the cost of setting up a Revocable Living Trust makes sense for you.
OVER 25 YEARS OF EXPERIENCE, SOME THOUGHTS ON THE GOOD, THE BAD AND THE UGLY OF REVOCABLE TRUSTS:
I have been an estate planning attorney for over 25 years. In those 25 years, I have drafted Revocable Living Trusts as a member of five different state bars. I have written hundreds of Revocable Living Trusts, but only for clients for whom these trusts were a good fit. I have probably told twice as many people that they do not need Revocable Trusts and to avoid the expense of forming the trust because it was not a good fit for the client’s estate plan. There is no way to know if you are a good fit for a Revocable Living Trust without careful analysis. Revocable Trusts are not a one-size-fits-all tool.
Is the Revocable Living Trust right for you? The short answer is that a Revocable Living Trust can be a useful estate planning tool for many people, but another unfortunate truth is that there are many people out there using lies and half-truths to sell Revocable Living Trusts to people who do not need them.
If you attended a seminar that concluded that everyone needs a Revocable Living Trust, then you are lucky to have escaped with your wallet. If you were told that your Revocable Living Trust would help you avoid Estate or Inheritance Taxes and creditors, you are lucky your car still was still in the lot when you came outside.
DEBUNKING REVOCABLE LIVING TRUST MYTHS AND HALF TRUTHS:
So first, let’s debunk the most prevalent Revocable Living Trust lies and half-truths.
Here are some of the things people say about Revocable Living Trusts:
A Revocable Living Trust will help me avoid inheritance and estate taxes.False.
A Revocable Living Trust does NOT reduce your inheritance or estate taxes. This I think is the worst myth, often touted by those who sell canned revocable living trusts (in faux leather binders).These people feel comfortable telling you this lie because the inheritance and estate taxes are due when you are dead, so you will never know that they lied to you.Remember, the trust is “revocable.” Because you may revoke the trust and you can take all the assets back into your name, the IRS and Department of Revenue ignore the trust’s existence when calculating not only your estate and inheritance tax but also your income taxes. If you need more proof, email me, and I will send you links to the IRS website that state this fact.
A Revocable Living Trust will shelter my assets from my creditors. False.
Again, the “Revocable” Living Trust can be “revoked,” so if you can get the asset back, your creditors can take it. The trust does not protect from creditors during your lifetime or at your death.
A Revocable Living Trust will shelter my assets from my nursing home bills and Medicaid.False.
Because the trust is “revocable” when evaluating your Medicaid eligibility the formula treats all Revocable Living Trust assets as if they were in your name. Use of an “Irrevocable Trust” where you have no right to the assets you gave away into the trust could shelter your assets, but never a “Revocable” trust. Again, for further proof merely review the Medicaid website.
Creating a Revocable Trust is all you need to do to avoid probate. False.
Forming the Revocable Living Trust is only the first step.
To avoid the Probate Process, you have to arrange all your assets to utilize the Revocable Trust. Filing deeds and paying filing fees moves real estate into your trust. Someone must complete the paperwork to transfer your bank and investment accounts into the trust. In the alternative, someone can complete the paperwork, so accounts pour into the trust at your death. You must complete beneficiary designations for other appropriate assets, such as life insurance policies, annuities and any qualified plans (IRA, 401k, TIAA-CREF, SEP, etc.).
Further, as the years pass you will likely change your investments. You may buy a new CD, or open a new checking account. All of those changes must be done with the overall Revocable Living Trust plan in mind, or you might undermine the goals which caused you to form the trust in the first place.
Nothing need be filed with the state if I have correctly set up my Revocable Living Trust.Misleading.
Filing a Revocable Trust depends on the rules of the state in which you are a resident at your death. If you die a Floridian, Florida law requires that your successor trustee file a notice with the court in the county where you died a resident. Other states are beginning to demand similar filings and, if your successor trustee wishes to start specific statutes of limitation for creditors, he or she will likely file some paperwork with the states.
My estate won’t need a lawyer if I have a Revocable Living Trust.Misleading.
The need for a lawyer to help with your estate has nothing to do with the existence or non-existence of a Revocable Living Trust. If your executor could handle your estate alone, then there is no need for a lawyer even if you had no Revocable Living Trust. Similarly, if your executor would need a lawyer to help with inheritance and estate tax returns, with obtaining releases from beneficiaries, with selling real estate or any other matter, then your trustee will still need a lawyer’s assistance even if you have a Revocable Living Trust.
IS A REVOCABLE TRUST RIGHT FOR ME?
A thorough analysis of if a Revocable Living Trust is right for you begins with some necessary information. This Article gives you the truth about Revocable Living Trusts. It is not a complete analysis of your given situation, which can only come with an interview with a competent estate planning lawyer where he or she obtains a clear understanding of your assets, family and your testamentary goals. For that analysis, you can always set up a free consultation with my office. But until then, here are some facts.
What Is a Revocable Trust?
A revocable living trust is a legal entity that you sign and bring into existence. Once signed, it will exist, but it will state that all the terms are “Revocable.” This means that the trust may own things, such as your real estate, but at any time you can “Revoke” the trust and take the assets back. Further, most Revocable Living Trusts state that during your lifetime all assets are for your care. Typically, you are the only trustee.
In contrast, you cannot revoke an “Irrevocable Trust.” If you transferred your real estate to an Irrevocable Trust, it would own the house, like the Revocable Trust, but you will likely not be able to ever get the house back into your name.
What is a Revocable Trust’s Design?
During your lifetime a Revocable Living Trust holds title to your various assets for your benefit. At death, the Revocable Trust manages and disposes of your assets. If structured correctly a Revocable Living Trust may completely replace your will. If you arrange all your assets precisely, there is no need to file your will with the state. So, good planning helps you avoid the Probate Process.
What are a Revocable Trust’s Costs?
If a Revocable Trust still sounds like a good fit for you, then consider the cost. Then analyze the expense against the cost of Probate. Is it cheaper to use the Probate Process, or is it cheaper to pay for the Revocable Living Trust to avoid the Probate Process?
Costs of creating the Revocable Living Trust include the actual drafting of the trust by an attorney, the cost of transferring any real property deeds into the trust, and moving your other assets into the Revocable Trust. The expenses of Probate vary from state to state.
Is Your Only Goal Avoiding Probate?
Is your only goal is avoiding the cost of probate (see below for other reasons)? If so, my experience is that the cost of setting up and funding a Revocable Trust in Pennsylvania or New Jersey is not cost-efficient. But, setting up a Revocable Trust to avoid probate in New York and Florida is cost-efficient. That is a general observation.
Ask Questions about Revocable Trusts.
But, there are other reasons for a Revocable Trust, which might have value for you.
Confidentiality. A will filed in the probate process is not private. Anyone can read a will once registered. If you have a former spouse or anyone else that you do not wish to read your will, replacing the will with a Revocable Trust may help. There will be no need to file a will or an inventory. A Revocable Living Trust will provide you confidentiality.
Reducing the Chance and Cost of a Will Contest. Do you believe that the chance of a will contest in your estate is high? If so, then a Revocable Living Trust can reduce that risk. You cannot stop someone from filing a challenge. But, you can make it much more difficult, expensive and less likely to succeed.
Convenience. A Revocable Living Trust can help avoid probate altogether. Even if its cost does not save your estate much money, it can certainly make it easier for the person who is handling your estate. This is especially true if that person lives far from your county.
Helping You Manage Your Assets. If properly drafted, a Revocable Living Trust can appoint someone as your co-trustee. A co-trustee can help you manage your assets and bills. But you don’t have to surrender control. It is an unfortunate fact that banks will work more willingly with your co-trustee than they will with your Agent. Many banks are suspicious of Powers of Attorney.
Real Estate in Several States. Do you have real estate in several states? If so, we avoid opening your estate in these states. This increases the cost of probating your estate. Avoid this added cost by placing each of these properties into a Revocable Living Trust. The single trust would then avoid probate in each state.
Bank Accounts or Investments in Several States. Do you have accounts in banks that do not have branches in your home state? Or, do you have privately held investments in businesses outside your home state? If so, each state will require your will filed. Avoid this cost by placing each of these investments into a Revocable Living Trust. The single trust avoids probate in each state.
Replacing Your Will. If drafted properly, and if you arrange your assets properly, a Revocable Living Will can replace your will. But still, allow you to create asset protection trusts to protect your heirs. You have the same options as if you had put those provisions in your will.
Do any of these reasons fits your specific needs? If so, then paying the costs of setting up a Revocable Living Trust makes sense. This is true even in Pennsylvania or New Jersey where probate is less expensive.
Considering the Pros and Cons Will Determine if a Revocable Living Trust is Good for You.
A Revocable Living Trust might be an excellent estate planning tool for you. But it will take more than a quick seminar to find out. Luckily, it will not cost you anything to get more information. Contact me to set up a complimentary initial estate planning consultation. You can count on one thing; I won’t sell you a Revocable Living Trust unless it fits your estate plan.
In this Post, I tried to introduce you to the Revocable Living Trust. Specifically about the process to determine if a Revocable Trust right for you. Hopefully, you are ready to answer the question, “Is a Revocable Trust Right for me?” Further, I included links to even more detailed information on my website. So, let me know how I did, comments and questions are welcome!
Furthermore, I would be happy to answer your questions. If you have any other matters feel free to contact our office for a free consultation. We try to make the process as painless as possible!
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Peter Klenk is the founding member of Klenk Law, a seven attorney boutique estate planning law firm. We serve clients in Pennsylvania, New Jersey, New York, Minnesota and Florida. Peter Klenk received his Masters in Taxation LL.M. from NYU Law School and his J.D. from the University of Minnesota Law School. He served his country in the Navy JAGC during Desert Storm. Easy to talk to, feel free to call Peter for an appointment. We will make the process as easy as possible!
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