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Mike Wells: Understand the pros and cons of a revocable trust

Mike Wells: Understand the pros and cons of a revocable trust

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In the last column, we addressed the basic estate-planning documents everyone should have: will, financial (durable) power of attorney and health care advance directives. In this column, we will discuss when (and if) you need a revocable trust, which is sometimes called a living trust.

Why is it called a living trust? The concept of such a trust comes from the Latin, “inter-vivos,” or roughly “while you are living.” It is admittedly a clunky phrase.

Advantages

1. Titling your assets into a trust generally avoids the necessity of filing for probate when you die. The expenses of a full probate estate can very well exceed the cost of setting up a revocable trust and retitling your assets into the trust.

2. It speeds up the estate-settlement process considerably. A full estate administration can take up to a year, whereas a transfer of assets in trust may take only a matter of weeks or even days to complete, often with limited assistance by an attorney.

3. It helps avoid limited probate estate administrations in states in which you have property, particularly real estate. (You will have to deed the out-of-state real estate into the trust, of course.) This is often called an “ancillary” estate administration, the expense of which can also add up.

4. Trusts can protect the estate from some court challenges, which may involve whether the decedent was competent (of sound mind) when documents were prepared.

5. It protects your privacy. In a probate estate, your assets which pass through probate are a matter of public record. Assets which are in your trust are not a matter of public record.

Disadvantages

1. Your attorney’s fees for preparing a trust (and an accompanying will) are typically more than what you would spend on a straightforward, simple will. Depending on what assets you have and how they are titled, your net cost without a trust may be less by executing a will and having a smaller estate with more limited expenses.

2. The extra time and expense to retitle your assets into the trust.

3. If you have no real estate and the bulk of your assets are in financial accounts which allow you to transfer assets at death by right of survivorship or by so-called payable on death accounts, these assets will likely NOT be included in your probate estate. This may mean a full estate administration, with multiple inventories and the necessary greater expenses, may not be necessary. So, you spend more money on the front end of the process by setting up a revocable trust than you save at the end, cost-benefit wise.

4. A revocable trust does not protect your assets from creditors.

What is the best approach? It really depends on the circumstances. If your assets largely go to your heirs by financial and brokerage accounts, you have no real estate, and your beneficiaries are pretty straightforward (to your surviving spouse and then to your surviving adult children, for example), a will without a trust, because of the added attorney expense on the front end to execute a revocable trust, may work best.

But a revocable trust probably makes sense if it will help you avoid the costs associated with a full estate administration, not to mention the considerable time savings of winding up the overall process sooner and keeping the value of your total assets out of the public record.

Ask your attorney to meet with you as a courtesy in your initial conference, after providing to your attorney a good summary of your assets. Your attorney can advise you the best and most cost-efficient way to proceed once your attorney has a full grasp of your objectives.

Remember: An informed choice is a smart choice.

Mike Wells is a partner with Wells Law, PLLC in Winston-Salem. Contact him by email at mike@wellslaw.us or call 336-283-8700.

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