Greenville Estate Attorney: “Why Should You Have a Revocable Lifetime Trust?”
September 30, 2009
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 may 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 conservator and 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. Additionally, after your death your successor Trustee will be able to instantly take over the management of the assets in the Trust without seeking authority from any Court.
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. And assets not transferred to the Revocable Trust may be subject to a Probate Proceeding. If avoiding probate is the goal, it is most important that a complete inventory of assets is developed and arrangements are made to transfer appropriate assets to the trust, whether by deed, re-registration, or assignment. Going forward, a periodic review to determine whether additional assets have come into the estate that need to be titled in the name of the trust should be conducted.
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. A Revocable Trust should also be considered when the estate owns real estate in multiple counties or states. In this instance, probate can be avoided in multiple localities.
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 generally 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. This is true. In South Carolina the Probate Court imposes a fee of approximately $2,500.00 per $1,000,000 of probate estate. This would be in addition to court filing fees and probate attorney’s fees. A Revocable Trust is generally cost effective in avoiding these fees.
3. Privacy
Probate proceedings and guardianship proceedings are public record. The Revocable Trust can eliminate the need for these proceedings, and thus preserve privacy.
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.
In conclusion, the Revocable Trust has many uses and there are many different reasons given for having one. 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 all 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 conservatorship, to protect real estate holdings from multiple probates, or to avoid a costly and protracted search for missing heirs in a probate proceeding.
Like any decent lawyer, I need to add a disclaimer here: unfortunately, it is impossible to offer comprehensive legal advice over the internet, no matter how well researched or written. And remember, reviewing this website and my blogs doesn’t make you a client of my Firm: before relying on any information given on this site, please contact a legal professional to discuss your particular situation.