You may have heard various reasons why somebody should have their assets in a Revocable Lifetime Trust. (”Revocable Trust”). Some reasons may be valid, others less so. Here is a discussion of some of these reasons, and the implications of each.

1. Asset Management

This is one of the major benefits of the Revocable Trust. While you are competent, you have the ability to manage your own assets. However, should you become incompetent through age, illness, or injury, you will not be able to manage your assets, and your family members will not be authorized to do so. If proper planning has not been undertaken, your family may be required to ask the court to appoint a guardian for your property and person. This is an expensive and time consuming legal proceeding. An attorney who fails to protect a client from a guardianship proceeding is committing malpractice, as this proceeding can be so easily avoided with a Revocable Trust and Power of Attorney.

2. Avoiding Probate

You have most likely heard this reason given as the major benefit of the Revocable Trust. It is true that assets placed into a Revocable Trust will not be subject to a Probate Proceeding. However, assets not transferred to the Revocable Trust may be subject to a Probate Proceeding. It often happens that some assets are inadvertantly left out of the Revocable Trust.  Thus, probate is required as to the left out assets.   A Revocable Trust with no assets transferred to it will not serve any purpose. If avoiding probate is the goal, it is most important that a complete inventory of assets is developed; arrangements are made to transfer those assets to the trust, whether by deed, re-registration, or assignment; and there is periodic review to determine whether additional assets have come into the estate that need to be titled in the name of the trust. 

Assets transferred to a Revocable Trust will avoid probate, but should it be the goal of all estate plans to avoid probate? Not necessarily. The avoidance of probate is most desirable in certain situations. In the situation where a Client has not kept in touch with and is unaware of the location of family members potentially entitled to share in the estate, a Revocable Trust is a necessity. Another situation calling for a Revocable Trust is where it can be foreseen that objections will be made to a Last Will, i.e., where there is a history of familial discord, or family members have been disinherited.

As for how long the probate process can take, a simple estate with no federal estate tax due, a small list of known beneficiaries, and no will contest, can easily be wound up in less than a year. If a federal estate tax is due, you can add about six months because that is about how long the IRS will take to process the estate tax return and give a closing letter.

You may also be told that a Revocable Trust will avoid probate court filing fees. While this is certainly true, one must keep in mind that the drafting and funding of a Revocable Trust is complex and will require increased legal bills.  The increased legal fee will offset the benefit of the decreased court filing fees. Saving on court filing fees should not be the only reason for having a Revocable Trust.

3. Privacy

Probate proceedings and guardianship proceedings are public record. The Revocable Trust can eliminate the need for these proceedings, and thus preserve privacy. However, one must realize that most people do not really care about the details of another person’s estate plan. The privacy of information is inversely proportional to that information’s value to another. So, unless your name is Donald Trump or Paris Hilton, you really do not need to worry about the maintenance of privacy from the public at large.

Maintaining privacy with regard to family members, may be trickier. A Revocable Trust is in effect during your lifetime. As such, the plan contained in the Revocable Trust may more readily be discovered by family members during the Grantor’s lifetime. By contrast, a Last Will may just sit in a file or deposit box until it is needed after death. Hence, the privacy benefits of the Revocable Trust are not necessarily the reason why you should have one.

4. Save Estate Taxes

The assets held by a Revocable Trust are ordinarily considered estate assets under Internal Revenue Code (”IRC”) 2036, 2037, or 2038. The Revocable Trust, in and of itself, affords no estate tax benefits. However, this does not mean that the Revocable Trust cannot be utilized in a way to minimize estate taxes. The way to do this is by inserting certain provisions in the trust document which allow the assets to not be included in the estate by the IRC. Provisions for a unified credit shelter trust, marital deduction planning, a Qualified Terminable Interest Trust (QTIP), a Qualified Domestic Trust (QDOT), or charitable deduction planning can all serve to reduce or eliminate estate taxes.  But keep in mind that these tax saving provisions can also be inserted into a Last Will and Testament for the same effect.

In conclusion, the Revocable Trust has many uses and there are many different reasons given for having one. While some are valid, others are less so, and careful consideration must be given to the objectives and unique situation of the client, before resorting to the Revocable Trust.  The Revocable Trust is not needed in many cases, but there are certain situations where the Revocable Trust makes sense, such as to avoid a foreseeable will contest, to provide for asset management and avoid a guardianship, or to avoid a costly and protracted search for missing heirs in a probate proceeding.