Revocable trusts (sometimes called “living trusts”) can be a means of avoiding probate and saving taxes at death. However, while revocable trusts do have their advantages over traditional wills, they are not for everyone. Read on for more information about revocable trusts, and then call Matthew P. Tabakman, P.A., to find the right estate planning tools for you.
The Revocable Trust in General
A revocable trust is an estate planning tool designed to manage your asstes during your lifetime, and then distribute any remaining assets upon your death. The person creating the trust (called the "grantor" or the "settlor") places a person or institution (called the "trustee") in charge of managing the trust assets. The grantor and the trustee can be one and the same - so if you wish, you may create a revocable trust to manage your property and appoint yourself trustee of the trust during your liefetime. What makes the trust revocable is that the grantor can modify or even terminate the trust at any point during their lifetime, as long as the grantor has not become incapacitated.
Upon the grantor's death, the trustee (or the successor trustee if the grantor was the initial trustee) will be responsible for paying all claims and taxes, and then distributing the assets to the beneficiaries as directed in the trust agreement.
A trust with no assets in it is no trust at all! In other words, creating the trust document alone does nothing to protect your assets or avoid a long, drawn out probate process. Once the trust agreement is executed, the trust must be "funded" with the grantor's assets (i.e. bank accounts, real estate, investments) before the grantor's death in order to get the maximum benefit from the trust. Funding the trust actually requires changing the ownership of the assets to the trust, via a change in title or perhaps a bill of sale. Assets not properly transferred to the trust may still be subject to probate. Don't worry -- even though the title of some property might change, you will still have control over your assets according to the terms of the trust agreement. Certain types of assets should not be transferred to the trust - talk with Mr. Tabakman about what property should remain outside of the trust.
Why Avoid Probate?
Probate has been mentioned several times already. This is the court-supervised process of administering a decedent’s estate. It can be a complicated, time-consuming and costly process to pay the decedent's creditors and then transfer a decedent's remaining property to his or her designated beneficiaries. Not only can it take many months to settle a decedent's estate via the probate process, but both the personal representative and the personal representative's attorney will be paid for their efforts - usually a percentage of the probate estate's worth. Of course, paying these individuals for their work leaves fewer assets for the decedent's beneficiaries.
Many of the costs and time delays associated with probate will also be necessary with a revocable trust administration. On your death, the trustee will collect and value the trust assets, idenitfy your creditors and beneficiaries, pay any taxes and expenses, and finally distribute the assets of the trust estate according to the terms. A trustee is entitled to a fee for administration of the trust, just as the personal representative of an estate is entitled to a fee in probate.
One major advantage of a revocable trust over a will-based estate plan, however, is in avoiding probate in multiple states. For instance, if you own real estate in Florida and Georgia, a probate estate would need to be opened in a Georgia court AND a Florida court in order to determine the fate of both properties. This duplication can usually be avoided by transferring title of the real estate to your trust during your lifetime, and then administering the trust according to the laws of the state designated in the trust agreement.
A Revocable Trust Can Help Avoid Probate
When a revocable trust is created and properly funded, your assets are transferred during your lifetime to the trust. Because your assets are now "owned" by the trust (but still controlled by you, don't worry!), the probate process is not required in order to transfer that property upon your death. The trustee (or successor trustee, as the case may be) has immediate authority to manage the trust assets at your death; appointment by the court is not needed.
The process of “funding” of a revocable trust is very important if probate is to be avoided. If a trust is not fully funded, then it's possible that both a probate administration for the non-trust assets as well as a trust administration to completely distribute the assets will be needed. A simple “pourover” will can be used to transfer any probate assets to the trust after death if the revocable trust is not completely funded.
If you're wondering whether a revocable trust might be right for your estate plan, email or call us at (407) 926-0324.
