When to Use a Revocable Living Trust

Living TrustShould You Set Up A Revocable Living Trust?

There are many estate planning situations in which a Revocable Living Trust is the best and most economical way to help clients meet their goals. In these situations, a Revocable Living Trust offers many advantages over a simple will. There are also a few disadvantages.

A Revocable Living Trust should be considered when:

  1. There are Federal Estate Tax issues
  2. There are State Inheritance Tax Issues
  3. Client is in beginning stages of degenerative disease.
  4. Clients are a couple with young children.
  5. There is a second marriage.
  6. Client(s) are an elderly couple or individual.
  7. Clients want to organize affairs now.
  8. Clients want an institution (bank trust department) to manage their assets and give them an allowance.
  9. Clients have children with special needs.
  10. Clients have a farm or business.
  11. Client is a surviving spouse.
  12. Clients desire to avoid probate.
  13. Clients desire to protect assets from immature or drug-dependent children.
  14. Clients desire to protect assets from children's creditors (divorce judgments, medical bills).
  15. Client has property in more than one state.

Advantages Of The Revocable Living Trust

  1. Control
    • During Incapacity
      Should the grantor become disabled, the trust will control assets during the grantor's life. If the trust is properly funded, it eliminates the need for a guardian of the estate in case of incapacity because a successor trustee can handle all of the financial transactions for the grantor.
    • After Death
      Disposition of your client's assets is governed by your trust and handled by your successor trustee.
  2. Privacy
    A will must be probated, which is a public process. Trust administration is private.
    • When your will is admitted to probate, its contents become public. The contents of a trust need not be made public.
    • In probate, legal notices must be given to alert potential creditors of a client's demise and invite them to make claims against the estate. Trust administration requires no such public oversight.
    • Probate is supervised by the court, and involves the possibility of a court battle over assets. Trust administration requires no court oversight.
  3. Avoidance of probate costs
    Avoid attorney fees (typically about $2,500 in a simple probate, and much more when there is a contest over the assets or who will be the personal representative).
    • Avoid personal representative's fees (the personal representative may take 2 percent of the estate).
    • Avoid trips to the courthouse and time and expense of filing papers
    Save time.
    Trust administration is typically less time-consuming than probate, so your beneficiaries will receive your assets more promptly.
  4. Simplify estate tax planning
    When all of a couple's assets are held in a single trust, funding a credit shelter trust (family trust) is much easier.
  5. Can help protect children of a previous marriage
    Can save assets from being transferred to family of a second spouse. When a surviving spouse remarries, the assets that were meant for the family of the deceased spouse may inadvertently be transferred to the survivor's second spouse, then to his/her family. The revocable living trust can include provisions for a credit shelter trust, which will avoid this.
  6. Can save assets from the surviving spouse's creditors
    Using a credit shelter trust can save assets from the surviving spouse's creditors, when certain rules are followed.
  7. Can administer property in several states with one document.
    A trust avoids the costly "ancillary probate" proceedings that are required when the estate property is located in more than one state.
  8. Can take advantage of expertise of institutional trustees to manage assets.
  9. Beneficiaries usually receive assets faster.
  10. Powers of attorney are not always honored, whereas trusts must be.

Disadvantages Of Revocable Living Trusts

  1. No date-specific cutoff of creditors claims. (In probate, there is a cutoff date after which creditors may not pursue the estate for debts.)
  2. Upfront costs (cost of setting up a trust) are greater than the costs of creating a simple will.
  3. Trusts must be funded in order to get the maximum benefit from them, and that takes time and attention.
  4. There is some maintenance required, such as ensuring that future purchases, inheritances, etc., are placed in the trust.
  5. There are some expenses involved in after-death administration, though not as many as for a probate.

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King Law Offices, LLC
1667 Capital Avenue, Suite A
Madison, WI 53705

Phone: 608-620-7285
Fax: 608-233-9422
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