Is a Revocable Trust Right for Me?

“…In this world nothing can be said to be certain, except death and taxes.” Benjamin Franklin penned this maxim in the late 1800’s, and it is as true today as it was back then.

Indeed, taxes are a certainty, as we are reminded with every paycheck, purchase, and each April 15th. But death, and preparing for our own eventuality, is certainly overlooked.

This concern is supported by a 2024 survey that reveals only 32% of Americans have an estate plan in place.1 There may be a myriad of reasons for this statistically low figure, but topping the list would be time (procrastination) and money (cost). Further there are those, 40% of the respondents, who believe they are too poor to justify having a Will.

But Wills and other estate planning documents address much more than simply one’s financial holdings. They also help to determine who can make decisions on your behalf or may care for your dependents, how to minimize unnecessary waiting periods, fees or taxes, and how to handle other matters that might arise when a person passes. Most importantly, estate planning offers peace of mind, knowing that your wishes will be conveyed and fulfilled in your absence.

So you’re ready to assemble your estate plan, what are some documents that should be included? Most individuals and couples would benefit from a Will, a Revocable Trust, Powers of Attorney (POA), and an Advance Health Care Directive. For the purposes of this discussion, we’ll focus on the first two documents – a Will and a Revocable Trust.

What Is a Will?

A Will (more formally known as a Last Will and Testament) is a legal document that specifies how your property and other assets should be distributed after you pass, and normally includes the following:

• A designated Executor (Personal Representative) who manages your estate from the time of your passing until the probate process is complete;

• A designated Guardian for your minor child/ren, if you have any; and perhaps a designated Successor Custodian if you are acting as the custodian of your child/ren’s assets; and

• Designated Beneficiaries who will benefit from the disposition of your property after your passing.

But what about those in the 68% who passed without a Will, referred to as dying “intestate?” Their resident state would distribute the deceased’s property subject to the state intestate succession law – their assets might not be distributed as they would have liked, nor the guardians appointed to care for their minor children might not be those who they would have selected.

For these reasons alone, most individuals and parents should make it a priority to establish Wills; they are relatively easy and inexpensive to have drafted and can be amended as one’s circumstances change.

What Is a Revocable Trust?

A Revocable Trust (also known as a Living or Inter Vivos Trust) is a separate legal entity that you create [as the Grantor] that will own property such as your home, investment assets, a boat or car. Upon establishing your Trust, you transfer some (or all) of your property into this entity.

A Trust legally exists the day it is created and, over your lifetime, you are in direct control of a Revocable Trust and all the assets therein. You have the ability to amend the terms of this Trust at any time or even terminate the Trust and regain personal ownership of the property.

When you pass, the Trust becomes Irrevocable. Your named Trustee will act in accordance with the rights/duties you laid out in the Trust Agreement, distributing the property per your wishes. An Irrevocable Trust can continue for many years.

Even though a Revocable Trust is a separate legal entity, you are considered the owner of the Trust assets for income tax purposes during your lifetime. Therefore, all income/gains/losses and deductions/credits flow through to you personally. Upon your passing, different tax rules will apply.

Revocable Trust Or Will – Which Is Right for Me?

When approaching the estate planning process, many people will overlook Revocable Trusts in favor of a Will based upon cost, complexity, and time – but what is the best way to protect your interests? Each person’s situation is different, but let’s look at some advantages of establishing a Revocable Trust over a Will.

1. Probate Court – when someone dies with a Will, his/her assets will go into probate to be proved valid or invalid – this is the legal process where a court supervises the distribution of assets. Conversely for those persons who have established and funded a Revocable Trust, the probate process is not required. Why is this an advantage?

a. Cost – probate proceedings can be expensive when factoring in court costs and attorney’s fees; it is estimated that probate can cost from 3% to 7% or more of the total estate value.

b. Speed – probate proceedings may take up to a year or two; assets typically are frozen while the courts decide upon the disposition of the property. Assets held in Trust can be transferred to the beneficiaries more quickly in their time of financial need.

c. Simplicity – when dealing with the death of a loved one and the emotional toll from the loss, you likely want the transition to be as seamless and simple as possible. A Revocable Trust offers this continuity, a Will mired in the probate process does not.

d. Privacy – this is an important consideration if you want to keep your family’s financial matters outside of public view. A Will must go through the court system and becomes public record – anyone can request and access these records. A Revocable Trust avoids probate thus helps to maintain privacy.

e. Hindrance – probate may interfere with the management of a closely-held business or other investment property. Property held in Trust can offer a smoother transition of such interests.

2. Specificity – Trusts offer the ability for more customization on how your assets will be distributed; you may include more specific provisions for age attainment or asset usage than is provided by a Will.

3. Benefits While Living – Wills only go into effect when a person passes, but a Revocable Trust can help your family if you become disabled, ill, or unable to manage your affairs. Your Trustee can step in and take immediate control of your property for your care and support, fulfilling responsibilities such as paying bills, making deposits/distributions, filing tax returns, etc.

4. Control Everything, Own Nothing – upon your passing, a Will allows you to stipulate to whom you leave your assets, but not necessarily how or when they receive those assets. With a Revocable Trust, you can maintain control over your assets while you are alive even though you have transferred ownership to the Trust. At your passing, your Trust agreement follows your wishes to ensure exactly how your assets are overseen and transferred.

5. Creditor Protection – Wills only go into effect when a person passes away and, after probate, the assets are disbursed to the beneficiaries. Creditors then can lay claim to these assets. Conversely, a Revocable Trust maintains ownership of the assets for the benefit of the heirs, offering creditor protection. The Trust can be structured so that it is very difficult, if not impossible, for the creditors of beneficiaries to gain access over the Trust property.

6. Pour Over Will – despite your best efforts to transfer ownership of your assets and property to your Revocable Trust, there might be some items that are not transferred. A Pour Over Will allows for these assets held outside of your Trust to transfer into your Trust automatically upon your death. Pour Over Wills still are subject to the probate process, but your remaining assets will go to your intended beneficiaries in due time.

And Some Advantages of a Will Versus a Revocable Trust

1. Guardianship – when a Will is drafted, a guardian is appointed to raise minor children; whereas a Revocable Trust appoints a Trustee to manage the child/ren’s inheritance. Thus typically, you would want to have both a Revocable Trust and Will drafted to cover each of these objectives.

2. Creditor Protection – the probate process requires that all claims against your estate are presented within several months of your death Conversely, with property that passed through your Revocable Trust, it is possible that creditor claims still may arise years after your death.

3. Cost – it will cost more to have a Revocable Trust drafted than a Will. And funding your Trust (transferring property) may subject you to attorney fees, filing fees and transfer taxes; you will not pay these when you establish a Will. So you are faced with the option of paying now (Trust costs) or paying later (probate expenses). Are the advantages of a Revocable Trust noted above worth shouldering some of these upfront costs?

Whatever path you ultimately decide to pursue, we would advocate that you act expeditiously to have a proper estate plan set in place. Estate planning is a crucial aspect of one’s financial well-being.

With this in mind, Signature Wealth Management Group has invested in a partnership that provides a user-friendly website empowering you to administer estate planning documents at your convenience. If you’d like to learn more or get started, simply reach out to us with your interest via email and we’ll be in touch shortly!

 

 

1 Caring.com’s 2024 Wills Survey Finds That 40% of Americans Don’t Think They Have Enough Assets to Create a Will

Information provided is general in nature and does not constitute personalized investment advice. A professional adviser should be consulted before implementing any of the options presented. Any tax and estate planning information provided is general in nature and should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.