Published January 15, 2012 in the “Palm Beach Daily News”
A Revocable Living Trust is often called a substitute for a Last Will and Testament. It is a legal document that is signed during your lifetime, and when assets are retitled into the name of the Trust, it is deemed “funded”.
As the Settlor of your Trust, you may amend or cancel it at any time during your lifetime. Assets retitled into the name of the Trust today may be withdrawn the next day. The Trust is, literally, your alter ego.
In the event of your death, or legal incapacity, the person that you have named in the Trust assumes your duties to manage, invest and administer the assets held in the Trust according to the terms and provisions that you selected to be included in your Trust document.
Some Of The Pros Of The Revocable Living Trust
Avoidance of Probate. Upon your death, the Trust becomes irrevocable and the assets held in the Trust avoid probate. This allows your named beneficiaries to receive the benefit of your assets without going through the probate process. Probate is a Court supervised process which can be time consuming and involves significant attorney and administrative fees. The successor Trustee that you selected during your lifetime will assume the administration of your Trust without Probate Court supervision.
Please note that the probate process begins with one ($1.00) dollar in assets. It has no correlation with the Federal Estate Tax Exclusion Amount, which is presently at five million ($5,000,000.00) dollars.
Avoidance of Guardianship. As we all live longer these days due to improved medical treatment, there is an increased possibility that we may suffer from diseases such as Alzheimer’s, strokes, diminished capacity and dementia. Because of these various medical conditions you may become unable to manage your own affairs. If this happens a guardianship proceeding is usually required.
A guardianship is a Court supervised proceeding whereby a Court appointed guardian of the property will administer your financial assets, and a Court appointed guardian of the person will oversee your physical well-being. The guardian of the property and the guardian of the person maybe, but are not always, the same person. Both types of guardianships are Court supervised, and require periodic reports to be filed with the Court. There are continuing filing fees. Florida law requires that each guardian must be represented by a Florida licensed attorney. The entire experience is emotionally and financially unpleasant for family members, and usually continues until the adult ward dies.
If your assets are titled in your Revocable Trust, upon your incapacity your named successor Trustee will administer the assets in your Trust for your benefit until you either recover from your incapacity, or until your death.
Some Of The Cons Of The Revocable Living Trust
No Asset Protection. Assets titled in your Revocable Living Trust are not exempt from creditors. That is, retitling an asset into your Trust that is not an exempt type asset will not provide any protection against creditors merely because it is retitled into your Trust.
Assets retitled into an Irrevocable Trust, a Corporation, a Limited Liability Company or a Limited Partnership may be more appropriate for asset protection.
Inappropriate Assets. Any assets held in a retirement plan, including Individual Retirement Account (IRA), Roth IRA, pension, profit sharing and 401(k) plans should not be retitled to a Living Trust. If that were done, the entire account would constitute immediate taxable income to the owner of the account.
You may have assets in joint accounts, ITF (in Trust for) accounts or POD (pay on death) accounts. If you wish these accounts to pass to the joint tenant, or named beneficiary on the ITF or POD accounts, then you may not want to change the designation on these accounts. However, there is always the risk that the joint tenant, ITF or POD beneficiary may die before you do. In that case, the account will pass through probate.
No Income or Estate Tax Avoidance. Transferring assets into a Revocable Living Trust does not eliminate Federal income and estate taxes.
Administrative Work. It does take time and effort on your part to re-title your assets from individual ownership into your Revocable Living Trust.
Please weigh the pros and cons of a Revocable Living Trust to decide if one is appropriate for you, and if it is, contact your attorney to prepare one that is tailored to your personal needs.