If you mention trusts during a discussion about estate planning, most people will assume you’re dabbling in the purview of the rich and famous. After all, if you don’t have $100 million sitting around, what reason is there to set up a revocable trust? As it turns out, there are many reasons that a revocable trust could be a critical piece of a solid estate plan.
What is a revocable trust?
A revocable trust, also called a “living” trust, is a written legal document that places an individual’s assets into a trust for that person’s use and benefit. The individual has the power to pull the assets out of the trust during their lifetime and can transfer the assets to designated beneficiaries at death. Assets in a revocable trust are not exempt from estate tax. However, in spite of this, here are five benefits that a revocable trust can provide:
What does it do?
- Provides Privacy: A will is public record and filed with the probate court, but a revocable trust is a business contract and a private document. Neither the trust agreement nor the trust property are identified in court documents.
- Avoids Probate: Probate court is slow and expensive. Revocable trusts don’t go through probate, which means a process that usually takes months or years may instead only take weeks.
- Manages Incapacity: Accidents, illness, and the natural aging process can all impact a person’s ability manage their assets. With a revocable trust, a professional trustee can step in and make key decisions during this time.
- Addresses Second Marriages: Unfortunately, the surviving spouse of a second marriage may not have much incentive to take care of children from the first marriage. A revocable trust can ensure that the children from the first marriage are protected.
- Supports Young Children: If a set of parents pass away without a trust, then their children will have access to all of the family assets as soon as they turn 18. However, if the parents pass with a revocable trust, they can select a professional trustee that has the discretion to use funds for the children’s benefit. They can then manage the funds until the children reach a certain age.
For more information on initiating your estate planning process, take a look at this Forbes article.
If you have any questions about revocable trusts, please contact Paul Zee-Cheng or one of our tax advisors at 301.231.6200.