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When developing an Estate Plan, those with forethought consider whether a Revocable Trust is beneficial to them.  Most people who understand how to use a Revocable Trust in Estate Planning find that there are many benefits that in most cases far outweigh the initial cost of creating a Revocable Trust.

What is a Trust and specifically a Revocable Trust?

Within the realm of Estate Planning, a “Trust” is a written agreement that generally governs the distribution of assets upon death and possibly governs the distribution of income during life.  There are many types of trusts that usually fall with the following two categories:

 (1) a “living trust,” created during the lifetime of the individual; and 

(2) a “testamentary trust,” created upon the death of the individual through a testamentary instrument such as a last will and testament.

Within the category of “living trust also known as “inter vivos trust,” there are:

(1) Revocable Trusts that an individual who is generally called the grantor or settlor creates during his or her lifetime and has a right to revoke (cancel) or amend the trust during his lifetime; and an

(2) Irrevocable Trusts wherein the individual creates the trust but relinquishes the right to amend or cancel the trust at a later date.

If you want to create a Revocable Trust, you will decide what assets you want to put in the Revocable Trust upon its creation.  During your lifetime, you have the flexibility to change the assets, remove the assets, amend the terms of the trust such as whom you want as beneficiaries, or cancel it altogether.  

Why use a Revocable Trust?

Generally, the following are reasons why most people use a Revocable Trust:

  1. To avoid Probate – limits costs and public disclosure;
  2. To provide yourself with more flexibility in Estate Planning; and
  3. To designate the trust as a beneficiary in your will or with your testamentary substitutes.

One of the major reasons someone creates a Revocable Trust is because they want to avoid Probate.  Probate is the proceeding wherein the executor named in the last will and testament petitions the court to accept the will as valid and permit the executor to collect and distribute assets as per the decedent’s or testator’s wishes set forth in the will.  This process can be very time-consuming.  Further, the court can place many restrictions on how the executor can distribute the asset.  For example, if there is real property, such as a home, the court may restrict the sale of the home prior to the executor obtaining court approval.  The distribution of assets may take many months or even many years prior to the full distribution of the assets.  By using a Revocable Trust upon the death of the individual, the successor Trustee named in the Revocable Trust (usually the Grantor is the Trustee during life) can more efficiently distribute the assets as per the terms of the Revocable Trust and avoid the time-consuming process of Probate.

Moreover, the cost savings can be significant with the avoidance of Probate.  Since the Probate Process involves court intervention, the amount of paperwork, hearings or filings can be not only cumbersome but very costly as many people know.  Using a Revocable Trust would streamline the process and make it less expensive to collect and distribute assets.  The cost savings usually outweigh the cost of creating a Revocable Trust.  Further, because the probate of a Revocable Trust is generally unnecessary, the Trustee can keep the terms of the Revocable Trust private upon death.  Note though if an individual name's the Revocable Trust in the will (usually termed a “pore over will,” the court may require a copy of the trust for the court file.

A further benefit of using a Revocable Trust is the flexibility it provides you in Estate Planning.  Revocable Trusts are generally easier to amend than a last will and testament.  As previously mentioned, you can change the asset allocation of the Revocable Trust during your life, amend the beneficiaries or change between income beneficiaries and remainder beneficiaries. Nevertheless, extreme care should be taken prior to creating, amending or canceling a Revocable Trust to make sure you do it in the proper way.

 Another benefit for a Revocable Trust is to use the trust as a beneficiary for the non-testamentary assets, which are assets that do not require probate, such as retirement accounts, life insurance and certain brokerage accounts with payment upon death beneficiary (along with joint accounts).  With care and the proper advice, an individual can name the Revocable Trust as a beneficiary for some of these types of assets and upon distributing the assets to the Revocable Trust, allocate the assets as per the terms of the Revocable Trust.

Discussing with your attorney the benefits of a Revocable Trust to determine how you can use it in your Estate Plan is a good idea since it may save you or your estate time and money in the long run.

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