Chambliss Estate Planning Essentials brings you legal developments and other trends of vital interest in the world of estate planning. This post is brought to you by Peter Harrison and other members of the Estate Planning Practice Group of Chambliss Law Firm.
Revocable Trusts: Your Alter Ego
(cape and mask not included)
If you've ever wondered what a revocable trust is, what it does, and whether you need one, let me introduce you to your alter ego, the revocable trust. Clients often ask us about revocable trusts, usually in relation to a story they heard on the news or read in a blog. Much like how Peter Parker's mask alone doesn't make him Spiderman, a revocable trust doesn't change who you are. But, it does give you an alternate identity and the freedom to do some amazing things.
What Exactly Is a Trust?
At its heart, a trust is the result of a friend or family member giving something to someone else for the benefit of another. The grantor, also known as the settlor or trustor, creates the trust. A trust agreement includes information on the grantor, the trustee (who is responsible for holding the property), and the beneficiaries (the person(s) who eventually receive the property). The agreement also specifies how and when to distribute the property (money, stocks, land, things, etc.). For example, you can write a trust to provide for your spouse after you pass away, and you can have the remainder pass to your children in the future, regardless of whether or not your spouse remarries and wants to leave an inheritance to the new spouse. Trusts also allow you to provide for a child with special needs without affecting state benefits like Medicaid and SSI. A third example is to use a trust to encourage a grandchild to go to college or start a business.
The Revocable Trust in Estate Planning
Usually after death, a person's assets go through probate (the court process for paying final debts and passing property to heirs). However, if you have a trust, you can pass property to heirs without having them go to court for probate. Because a revocable trust is a separate legal entity from you, it can be used the same way a superhero uses a costume. Here are some of the advantages of revocable trusts:
Benefit No. 1: Avoid Probate
Avoiding probate saves your heirs time, money, and probably headaches. Since a revocable trust is like a mask and is viewed by the court as a separate entity, your trust property doesn't have to be considered in probate. Probate is started in your home state, but if you manage to make everything you own (real property, bank accounts, and even your personal property) part of the trust, you have nothing left to pass through probate. If you owned property in multiple states, the revocable trust removes the need for your heirs to go through probate in each state. Jointly held assets go to the survivors. And, transfer on death/payable on death accounts and retirement accounts follow your beneficiary designations. The more property you have behind the mask, the less your heirs will have to deal with in probate.
Benefit No. 2: Privacy
Normally probate proceedings and the content of last wills is available to the public if filed with the court. However, only the people involved in a revocable trust have the right to see the juicy details. So, celebrities and anyone else who doesn't want the prying eyes of the public to scour the gifts to loved ones can find privacy in a revocable trust.
Benefit No. 3: Flexibility
Trusts are more flexible than a superhero's spandex. Why? When you create a trust, you have the option of setting the terms in stone (irrevocable) or retaining the power to change or undo the provisions of the trust (revocable). In some instances, such as estate tax planning, you may want the trust to be unchangeable. The rest of the time, you probably want the ability to modify the terms to adapt to the changing circumstances of life. This is where you can really put up a good fight wearing a revocable trust's flexible costume. With a revocable trust, you can generally duplicate your last will. You can make the funds available to you during your life, and you can determine who gets how much and at what time after your death. Finally, you can change the provisions whenever you want. Have a child with a manipulative spouse? Let's change her share to a trust so that bad son-in-law can't get to her inheritance. Have a child who's become well-off? Let's shift that share to a trust for the grandchildren so they can get a good start on saving for their own lives.
Revocable Trust for the Win
In its realm, a well drafted revocable trust is versatile and can save the day if used properly. If you want to know more about using a revocable trust in your unique situation, or if you want to know more about estate planning, please contact us.