Revocable Living Trusts

There is probably more misunderstanding about the revocable living trust than any other estate planning technique. The Revocable Living Trust is also frequently called a Grantor Trust, Revocable Trust, Living Trust, Intervivos Trust and even a Family Trust. In general, a revocable living trust means any trust that is created by a person, for that person’s own benefit while he or she is alive, and then acts to distribute money after the person’s death. (Some states, usually community property states, also allow a husband and wife to set up a dual grantor trust.)
A revocable living trust is part Financial Power of Attorney and part Will, wrapped up into one document. Some attorneys and financial planners claim that the revocable trust is the panacea of all estate planning because it helps avoid probate. Many people do not understand that in many states, probate really is not that difficult and the cost of setting up a revocable living trust can far outweigh the benefit in such states. Additionally, we see many people managing their trusts incorrectly and forgetting to put all of their assets into the grantor trust.

Here’s the dirty little secret about that – if you leave even one asset out of the trust at the time of your death, you have to go through probate anyway. The biggest mistake that many people make with respect to revocable living trusts is that they assume that they do not have to do estate and inheritance tax returns as everything passes outside of probate.

A revocable living trust can be great part of a tax planning strategy, but it does not reduce taxes any more than a good Will can and returns must still be filed. So when does a revocable living trust make sense? It can be a valuable tool in any of the following situations:

  1. If you live in a state where it is cost effective to avoid probate.
  2. If you have real estate in multiple states, especially if one of those states is a state where probate is costly. (If you own real estate in multiple states, your heirs must go through probate in each state to transfer the property.)
  3. If your family requires immediate access to money and other assets after you pass. If you have to go through the probate process, it may take a while.
  4. If you want privacy. Wills are public documents.
  5. For individuals who require help managing their money while alive and a Power of Attorney just doesn’t suffice.

If you have any questions about trust planning or revocable living trusts, please contact Wills Trusts and Estates Attorney Kevin A. Pollock, who is the head of the firm’s Trust Planning Department.

For more information on Revocable Trusts, please visit my blog: Kevin A. Pollock BLAWG