IS A REVOCABLE LIVING TRUSTS RIGHT FOR YOU?

By: BENJAMIN D. ECKMAN, ESQ.
Elder Law Attorney

A “revocable living trust” (also known as a “revocable inter- vivos trust” or simply as a “living trust”) is a vitally important and useful estate planning technique. It is a trust, established during your lifetime primarily to plan for your older age or to provide protection against disability. The trust is revocable because the grantor can change the trust at any time he or she is alive and competent. It can be amended, modified, or revoked simply by signing a new trust arrangement. It is called a living trust because it is created during your lifetime as contrasted with testamentary trusts which are established under your will following your death.

Some of the essential features and benefits of a revocable living trust include:

MANAGEMENT AND CONTROL OF THE ASSETS IN THE TRUST

The grantor retains complete control over the assets in the trust while he or she is alive, and is still able to manage his or her own affairs. This trust arrangement provides the client with an ideal tool for management of the assets. This is especially useful in the event of advanced age, illness, or disability which would make it difficult to handle one’s financial affairs. One can use this type of trust to establish a range of procedures to govern the management of assets. If you are not satisfied with how things are working out, you can always modify the provisions governing management.

Additionally, you should also appoint a co-trustee to serve along with you so that in the event of your disability or inability to manage the assets, the co-trustee could immediately step in and assist you without any administrative delays. It is very easy, cheap, and private for your assets to be managed by the co-trustee, in the event you become incompetent. In some states a co-trustee may be necessary to avoid a legal problem called “merger”. If you are the grantor, sole trustee and sole beneficiary of the trust arrangement, some states have held that a valid trust may not have been formed.

To obtain maximum benefits of the use of a revocable living trust, it is important that you consolidate your investment assets to a limited number of accounts. By doing so, it facilitates the management of the assets by a successor trustee or co-trustee in the event of your disability. Maintaining assets in numerous banks or brokerage firms can create a costly administrative burden which outweighs the intended benefits of using this trust.

A REVOCABLE TRUST IS THE BEST WAY TO PLAN FOR A DISABILITY

A general durable power of attorney is a simple approach that enables someone to act on your behalf in the event of your disability. However, a living trust can provide far more detailed provisions and contingency plans for dealing with the disability. Banks and other financial institutions may more readily accept the authority of your trustee than your agent.

INCOME AND ESTATE TAX CONSEQUENCES.

For income tax purposes, the trust is generally ignored and disregarded, and all income and deductions are reported on your own individual tax return. For example, if the trust makes charitable contributions, you would claim the contribution as an itemized deduction on your personal income tax return. Thus, the trust generally files no separate tax return and has no tax benefits or costs. As such, it is not a vehicle for reducing income taxes.

For estate tax purposes, living trusts by themselves do not avoid estate taxes. A properly drafted living trust, however, can double the amount of the federal estate tax deductions you can pass tax free. In 2012 it is currently $5,000,000, so that a husband and wife can pass $10,000,000 tax free through the credit shelter trust, marital deduction trust or qualified terminable interest property trust that you would include in the body of your revocable living trust.

A REVOCABLE LIVING TRUST AVOIDS PROBATE.

Probate is the process of having a will admitted to the local court that handles such matters, demonstrating the validity of the will, marshaling all the assets of the estate, paying bills and taxes, and ultimately distributing the remainder of the assets in accordance with the will, or if no will, in accordance with state law. Probate can be costly, cumbersome, and time-consuming.

Living trusts avoids probate. A living trust can easily avoid the need for assets to be subjected to this process. If every asset you owned is transferred to the trust before death or given away as gifts, there is no need for the formal court probate process at all. This can be helpful in states where probate is still slow, annoying, and expensive, or if you own property in several states.

If you own real estate in another state other than the state in which you live, your living trust can eliminate the need for probate in this second state. This is commonly called ancillary probate. Ancillary probate is achieved by transferring the real property into the trust so that you own merely an intangible property interest rather than a real property interest in these other states. This can be an extremely useful and cost saving vehicle since the expense of operating a probate proceeding for a single asset at a long distance is often far more expensive than the costs and difficulties of a local probate proceeding.

Unless your family has sufficient assets to sustain it during the probate process, a living trust can prove a simpler and quicker method for getting needed cash and other assets to your heirs. On your disability or death, a properly planned living trust can ensure that investments will continue generating income available to your family, with little, if any, interruption.

A REVOCABLE LIVING TRUST AVOIDS PUBLICITY.

A revocable living trust, unlike a Will, is not made public after you die, so it’s more suitable if you’re doing anything unusual or possible controversial with your estate. As a result, this trust arrangement can minimize the publicity and public disclosure of information concerning your assets and bequests.

A REVOCABLE LIVING TRUST MAY REDUCE ATTACKS ON YOUR ASSETS

A living trust established years before your disability or death may have more credibility and provide less chance of a challenge based on fraud or duress than a Will created or changed shortly before your death. Some courts, however, may require a greater level of competence to establish a trust than execute a will.

In summary, the revocable living trust is one of the best estate planning tools for management of assets in the event of a disability and also avoids probate costs and difficulties. It is a popular form for holding property during your life, and then passing it on at your death as a “substitute will”. The trust can own all of your investment assets, as well as real estate and other property. Assets are easily and effectively transferred to the trust. To properly transfer assets, various legal documents must be completed. A schedule is generally attached to your trust listing each asset transferred.

The purported estate tax benefits of using a revocable living trust can be achieved by including the credit shelter trust or marital deduction trust into the body of the living trust. To realize any of the benefits of a revocable living trust, however, the trust must actually be funded after it has been established. Even if you never fund your trust during your life, your Will can state that all of your assets are to be turned over to your trustee, and then the trust actually implements your plan. This is known as a pour over will provision.

Benjamin D. Eckman, Esq. concentrates his practice on Elder Law & Estate Planning. Elder law is intended to broadly assist “extended living”. An elder law practitioner provides the legal information necessary for persons whose lives will extend or have already extended beyond the time when all children are usually out of the house and when regular employment ceases. After the elder law attorney and client complete their work, legal documents have been drafted, tax considerations have been analyzed, and a plan to protect the elder’s estate has been implemented.

Benjamin D. Eckman’s practice focuses on Estate Planning & Elder Law – legal issues facing senior citizens. Benjamin D. Eckman received his Bachelor’s Degree in Business/Accounting from Touro College and his law degree from Seton Hall University School of Law. He is a member of the New York State Bar Association, the New Jersey State Bar Association, the National Academy of Elder Law Attorneys, the Elder Law Section and Real Property, Probate and Trust Section of the New Jersey State Bar Association, the Union County Bar Association, Passaic County Bar Association and the Bergen County Bar Association. He can be reached at (973) 709-0909, (908) 206-1000 or (201) 263-9161.