It is common misconception is that trusts are only for the extremely wealthy; however, there are a host of benefits that trusts can provide to everyone. Today we are going to focus on what revocable trusts are and a few of the main reasons you may want to consider creating one.
Revocable trusts (also referred to as living trusts) are a common estate planning tool that are created during your lifetime. You set up a trust by drafting a legal document and titling assets under the trust name for your benefit during your lifetime. The trust document can dictate what will happen to your assets once you pass away and you can alter (or revoke) the trust document at any time while you are alive. While this may sound similar to what a will can accomplish, revocable trusts can go beyond wills by also providing directions on how to manage your assets while you are still alive. If you become incapacitated and unable to handle your personal finances, a revocable trust is able to appoint a predetermined individual to manage your affairs according to your instructions.
Assets that are titled under a revocable trust receive several benefits. The first major benefit is it can save you money. If you live in a state with probate (the state process ensuring wills are valid and followed) then you may have an opportunity to save in fees. For example, Delaware mandates every Delaware estate that has more than $30,000 of personal property and/or real estate located in Delaware must go through the state’s probate process. Delaware charges each estate a fee of 1.75% of the total probate assets (which excludes real estate and other select assets). Assets titled under a revocable trust are not considered probate assets. Therefore, you can save money by avoiding the probate fee, court filing fees, and any professional fees that would have been incurred during the probate process.
For income tax purposes, all activity that occurs within a revocable trust is reported on the grantor’s individual income tax return. There is no need to file a separate trust return while the grantor is still living.
Revocable trusts may also help ease the administration of a loved one’s estate. Since those assets can avoid the state probate process, they will likely be available to be distributed more quickly.
Lastly, revocable trusts provide more privacy than a will. Once an individual passes away, a will becomes public record and therefore all transactions related to the estate administration are open to the public as well. Revocable trusts are not made public and all administration of the trust may be completed privately.
These are only a few reasons you may want to consider whether a revocable trust would be a good fit for you. If you have any questions, please feel free to reach out to our trust and estate team to discuss further details.
Photo by Ken Teegardin (License)
