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Why a Revocable Trust?

Often clients come to us looking for a “simple” estate plan. At Rackemann, we strive to make the estate planning process as straightforward and efficient as possible, but even a simple plan recommendation often includes a Revocable Living Trust. This often leads to questions about why a trust is necessary or even advisable — especially when the clients would like all of their assets ultimately to go outright to their children at the surviving spouse’s death. Clients may have heard that trusts are overly complicated and involve high ongoing fees. While some types of trusts are complicated and require costly maintenance, a Revocable Living Trust is a relatively simple document that often incurs no fees or costs while you are living.

A Revocable Living Trust holds property during your lifetime if you choose to fund it while living and distributes your property after your death. The trustee of the trust manages the property for the benefit of the beneficiaries of the trust, and is required to follow the terms of the trust document, which articulates your wishes for how your property will be administered and distributed.

There are three main reasons for including a Revocable Living Trust in a “simple” estate plan: 1) tax planning, 2) privacy, and 3) to manage property passing to minors (even if that is not the current intention). There are potentially other benefits given a client’s individual situation and goals, but we find these reasons are applicable in the majority of client situations.

Tax Planning

If you and your spouse have assets of at least $2 Million (and this includes your house, life insurance policies that you own, retirement accounts, etc.), you and your spouse could save approximately $100,000 in Massachusetts estate taxes if a Revocable Living Trust is utilized. A formula in the Revocable Living Trust typically achieves this tax savings by fully utilizing the Massachusetts estate tax exemption of the first spouse to die and deferring any potential estate tax until the death of the surviving spouse. If your assets are less than $2 Million, tens of thousands of dollars could still potentially be saved.

The $100,000 figure above only takes into account the Massachusetts estate tax as the exemption from federal estate tax is currently $11.4 Million per person. A Revocable Living Trust would provide flexibility to allow for you to take advantage of Massachusetts and federal estate tax savings in the event that either or both of the laws change, where as a Will likely will not.

Privacy

Whether you like it or not your Will becomes part of the public record after your death. Any provisions that are part of your Will (i.e. who you would like property to go to or not, charitable bequests, etc.) are available for anyone to see. A Revocable Living Trust, on the other hand, is a private document and is not part of the public record, unless there is a legal dispute that brings it into the court record. You can have as detailed and intricate disposition of your assets in your trust, or not, as you prefer, and no one but you, your trustee and the trust beneficiary will know.

Leaving Assets to a Minor (inadvertently or on purpose)

Under Massachusetts law, minors, those under eighteen (18) years of age, are not allowed to directly receive assets by gift or estate bequest. In order for a gift or bequest to a minor to be valid, there must be a competent adult in place to manage the funds until the minor reaches maturity. If a minor is to take under a Will or intestacy (statutory provisions for those that do not have a will), a conservator must be named by the court to manage the funds on the minor’s behalf. The court will oversee and opine on the actions of the conservator, which can be costly and time consuming, until the minor attains eighteen (18) years of age.

The Revocable Living Trust can be an important administrative instrument to have even if you have no current intention of leaving assets to a minor. For example, in the event your child predeceases you, leaving surviving minor children of their own, most clients would want the deceased child’s share to pass to that child’s descendants (your grandchild or grandchildren). If you don’t have a trust to manage the funds for your grandchild, the grandchild’s surviving parent (or named guardian) would have to petition the court to gain access and control over the property as conservator. Revocable Living Trusts contain provisions to provide management of the assets on the grandchild’s behalf, thus avoiding the oversight and cost of the court and allowing you, rather than the court, to appoint a trustee in charge of those funds. Furthermore, most clients do not like the idea that a potentially large sum of money could be handed over to an eighteen year old. Provisions can be included to provide management of the assets until the grandchild reaches a later age, such as twenty-five or thirty (or anything you would like), before they have unfettered access to the trust funds.

Conclusion

For the above reasons, it is often a good idea to consider a Revocable Living Trust, even when you would like to keep your estate plan “simple”. Reach out to any qualified attorney in Rackemann’s Trusts and Estates practice and we can guide you through the estate planning process to draft the best plan for you and your family.

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