When considering the employment of trusts in an estate plan, strategies are often selected because of the tax savings or tax efficiencies that can be garnered. Revocable trusts are a glaring exception to this rule. There are no tax savings to be gained by creating and funding a revocable trust, nor any asset protections provided to its settlor. Rather, this type of trust is used to provide substantial, non-tax benefits to the settlor including continuity, flexibility, and privacy.
REVOCABLE TRUST STRUCTURE
A revocable trust is created by an individual (settlor) to hold property during their lifetime. Typically, the trust will provide that the trust property be managed for the settlor’s benefit. In many cases, the settlor will also serve as a trustee or co-trustee of the revocable trust during their life. The settlor will retain certain, considerable powers, such as the right to instruct the trustee to pay over any portion of the trust and the right to change or revoke the trust at any time. The co-trustee or successor trustee will have the power to make distributions to the settlor and the settlor’s family if the settlor becomes incapacitated. Upon the death of the settlor, the trustee will distribute the assets as outlined in the trust agreement.
Revocable trusts are often referred to as a substitute for a traditional will. In practice, most people will still need a will to dispose of their property. But by moving the bulk of ones assets to a revocable trust, advantages in the management and distribution of assets become immediately available.
ADVANTAGES OF USING A REVOCABLE TRUST
Continuity: A revocable trust is one of the best ways to ensure that if the settlor becomes incapacitated- and therefore unable to handle their financial affairs- assets continue to be managed and administered as he or she would have wanted. Because the parties to the trust are already named, the co-trustee or successor trustee can simply pick up the reins where the settlor left off. The settlor’s family will not experience any delays in getting access to trust assets or validating who can act on behalf of the settlor.
Flexibility: As their name suggests, revocable trusts are changeable- providing a great deal of flexibility. They can be modified or revoked at any time with relative ease.
Avoidance of Probate: Assets that are held in the name of a revocable trust are not included in the settlor’s probate estate. This can be especially advantageous in those cases where a settlor may own real estate in multiple jurisdictions- eliminating the need for multiple probate proceedings.
Privacy: While wills are public documents that can be read by any interested party willing to visit a courthouse, the details of revocable trusts are generally kept private. This becomes very beneficial to families who prefer to keep the size and details of their assets out of the purview of an eager press or nosy neighbors.
HOW PERSPECTA CAN HELP
Perspecta can help illustrate how a revocable trust can help with estate planning. Our team has helped clients create, fund and administer revocable trusts in many jurisdictions. Effectively utilizing revocable trusts requires the re-registration of assets in the name of the trust which may seem a daunting and time-consuming process. Perspecta can assist in this process to ensure revocable trusts are as effective as possible. Contact us to see how we can help structure a wealth transfer strategy that accomplishes your families’ objectives.