July 2015 Newsletter
Understanding the Revocable Living Trust
I like to think of a trust as a kind of container. Assets belonging to the grantor are transferred into the trust and are managed and distributed to the designated beneficiaries under a set of instructions. Some estate planning attorneys advise that all their clients should use a revocable trust. Whether or not a revocable trust is right you depends on your goals, financial situation, and personal circumstances.
The main argument about using a revocable trust is probate avoidance. Probate is feared as something expensive and time consuming. However, a one size estate plan does not fit all. Depending upon circumstances, there may be other estate planning tools that can be used to avoid probate instead of paying the costs inherent in creating and funding a trust.
A revocable living trust is created while the grantor is living. Assets are transferred into the trust. The trustee has legal title to the assets in the trust. However, the trustee has a duty to manage the trust assets on behalf of the beneficiary named in the trust. The grantor can be and often is the initial trustee and the beneficiary.
What are some reasons for creating a revocable living trust?
Disability Protection. If the grantor becomes physically or mentally disabled, the assets in the trust will continue to be managed and applied for the grantor’s benefit without any delay. Funded revocable trusts provide for both the current and the future management of trust assets.
Beneficiary Protection. A revocable trust can be used to manage assets for a beneficiary who may be unable to manage assets on his or her own or who has creditor issues or substance abuse problems.
Privacy. A living trust is not disclosed in the public record. Therefore the terms of the trust itself and the assets transferred into the trust remain private.
Probate Avoidance. Assets held in a revocable trust at the time of the grantor's death are not subject to probate administration. It can be especially valuable if real estate is owned by the grantor outside of the state he or she lives in. By transferring real estate and other assets held in other states, the revocable trust can avoid the complications of ancillary administration.
So what is so bad about probate administration that it should be avoided? In Virginia, probate is not so expensive and complicated that it must be avoided in all circumstances. Probate provides a service. It assures that the decedent's estate is accounting for and properly distributed. On the other hand such court review of the estate adds additional costs. In Virginia, executors and administrators are required to account to the Commissioner of Accounts for each year the estate is open. Dealing with a problematic asset can add time and thereby costs to the administration of the estate.
Estate planning is not a cookie cutter exercise. One pattern is not right for everyone. If you would like to discuss whether a revocable trust would be helpful please contact Edward Zetlin Law. We would be happy to discuss your situation.
Community Presentations in July for Ed Zetlin
Walter Reed - July 30th at 1:00 pm Why is Estate Planning Especially Important If you Are Single, Arlington Center 55+ at Walter Reed Senior Center, 2909 S 16th St. Arlington, Virginia 22204